Mortgage Loans – Top 10 Things You Didn’t Know
Mortgages are an almost inextricable part of the American dream. If you are going to own a home, it’s nearly impossible to do it without one. But, how much do you know about this American right of passage? Learn a little more about this very common commitment below:
- One of the earliest mortgage agreements can be traced to ancient India, where a set of laws called the Code of Manu forbid deceptive lending.
- Unfair debt practices have, it seems, always been part of the human experience. In Dante’s Inferno, a special circle of Hell (the seventh) was reserved for lenders who charged usurious rates or misled borrowers. Usury is specifically forbidden in both Biblical and Jewish Talmudic law.
- Many scholars believe that the word mortgage comes from the old French terms mort and gage. This literally translates as “dead pledge.” The pledge would “live” until a debt had been paid in full or it had been determined that the borrower was unable to pay.
- The modern mortgage did not come into being before the 1930s. Before that, homeownership was difficult and expensive. Most mortgages before then required a 50 percent down payment. Then, the buyer would make payments on the loan over a period of five years. At the end, the balance would be paid off in a massive balloon payment. This was out of many people’s reach, and only about 40% of Americans owned the homes they lived in.
- In the US before the Great Depression, people with mortgages had to renegotiate their interest rates every year.
- During the Depression, almost one in ten homes faced foreclosure. This rash of defaults on home loans only deepened the country’s instability and led to reforms in how loans could be written.
- Modern mortgages were an innovation of the Federal Housing Administration. The FHA instituted policies where down payments only needed to be equal to 10 to 20 percent of the home’s value and buyers were judged on their ability to pay rather than having an in with a banker.
- During the second World War, the GI Bill was amended to offer attractive loans to veterans. The terms included low interest rates and down payments as low as 5 percent. This stimulated the housing market and led to greater levels of home ownership.
- Until the eighties, mortgages were all fixed-rate, with predictable payments. The adjustable rate mortgage (ARM) was introduced so buyers could be enticed with low introductory payments.
- Over 35 percent of people who had ARMs before the housing crash of 2007 did not know whether their mortgage rates had a cap. This lack of knowledge caused a lot of sticker shock, with people having payments that sometimes doubled.