Maybe I should type this letter and thermofax it so that I can have a copy.
Dear Patricia:
I learned a few significant things today at the Wells Fargo Bank in the Winchester Shopping Center. My informant was Mr. Clinton Hisle (pronounced high sl).
Our figuring was correct in reaching the fantastic sum of $41,160 - the total cost of Los Padres 457 if it is allowed to run full course for 30 years at $131.00 a month. The build up of interest compounded at 5 ¾ % -- which means interest paid on accumulating interest year after year after year.
The cost can be reduced by paying off principal in advance. However, the laws governing FHA mortgage loans limits the advance payments to 15% of the original amount of the contract in any one year. The original contract is for $16,300. My calculations show 15% of this to be $2445.00. paying this amount, which I shall do, taking money from my savings, will drop the principal to $13,855. Hisle said $2440, but I think he was estimating, in round numbers, a year from now an additional payment of $2445.00. I’ll move more money from my savings and set up an account in your name (in case you might have to take over in a shorter time than we hope for. Then you’ll be able to make an annual reduction of $2445 (or $2440 if that’s what it turns out to be by the bank’s figuring.
Each $1000.00 reduction of the principal will reduce the interest cost by $52.50 a year. A reduction of [page 2] $2445 (one annual payment) should reduce the interest for the next twelve months by something like $128.36, which is an appreciable amount.
Mr. Hisle said that the amount of $90.14 which is the part of each $131.00 payment that now is charged to interest and principal is divided as follows -- $68.00 to interest and $22.00 to principal. With each payment, the breakdown changes, the amount credited to interest slowly being reduced and that credited to principal slowly being increased.
He believes, though he was not positive today and said he’d have to consult an authority on F.H.A. legislation, that the 15% limitation on annual payments is required by F.H.A. law. It was presumably part of the original F.H.A. legislation, enacted in the depression years to protect the investment of any person or agency who supplied an F.H.A. loan so they would have at least a few years in which the loan would bring them income. A loan abruptly paid off after 2 or 3 years wouldn’t bring the lender enough income to be worthwhile. This would make very difficult the problem of getting F.H.A. loans.
Of the 90.14 for interest and principal on the current payment (the one I just made), $6.50 would go to F.H.A. (Federal Housing Administration) and $34.00 to taxes and insurance.
The only alternative to the reduction by limited payments outlined abouve would be to pay off the entire indebtedness immediately - and I don’t have the money to do that. I will look into the possibility of a single bank loan sufficient to pay off the whole contract now and, if a better pattern of financing than the contract now can be had, it is [page 3] conceivable that that might be preferable. It’s big advantage would be that the tremendous buildup of costs by compounded interest over the years would be eliminated. The total cost then might be less than $20,000 and possibly only a little more than the $16,300 face value of the current mortgage. I’ll take this problem to Mr. Bunchill and perhaps to my bank, the “Crocker Citizens” of Palo Alto. Anyway, I’ll keep probing till I can learn what is the most favorable arrangement that can be had. In any such arrangement for a bank loan to pay out on 457 Los Padres, the Los Padres place would have to be the “security” to the bank for the loan. But it would be for a lot less than $47,000. The only thing else that is necessary would be to work and pray for a continuing healthy life for me for as many years ahead as is possible, so that I can continue to draw my retirement pay of $1030.10 a month.
Well, darling, that’s the “state of the nation” at the present moment. I’ll continue to keep you posted as I learn more and I’ll need your advice and to have your wishes stated every time a significant move is made. But I think we can beat the $47,000 by a great deal.
Much love, as always -- Carl
Dr. Carl Duncan and Patricia Whiting Collection (SJSU)
