Mortgages: The Death Pledge of the Early 1900s The word mortgage is of Latin origin. “Mort-” is from the Latin word meaning “death” and “gage” means that something is forfeit something of value if debt is not paid. Put together it means “death pledge.” It refers to the return of the property to the lender should you not be able to pay your debt.
In the Past And although this is true of modern normal and VA home loans, mortgages are much better financed now than they ever were in the 1930s, when they started becoming a thing. At that time, you usually had to pay 50% down on just a 3-5 year mortgage. You would then be required to pay interest payments over the coming years. With only 3-5 years to save up money, many didn’t have enough to finish the payment. Once the term was up though, you either had to pay off the rest of the debt, or refinance your home. Back then, insurance companies ran the show, not banks, and they weren’t very interested in looking into refinancing. You’d approach an insurance company to take out a loan to purchase a house. You qualified mostly on how well the company knew you. If you had a good reputation, they’d take you on. The insurance companies were interested because it offered them one great opportunity: the ability to seize property if the loans weren’t completely paid off. Think about it. Renting or selling property was an excellent way for insurance companies to make a lot of money quickly. When a homeowner-to-be paid a down payment on a home and started paying off their loans, a good portion of the property’s total cost was taken care of. Should that homeowner not be able to pay off his or her debt, the insurance company became the sole owner of the property, at a reduced cost. The financial gains surrounding mortgages were designed around defaulting loans. Aren’t you glad that times have changed?
Mortgages Today Today, it’s normally your success at paying off the loans that the banks are interested in. They want guaranteed money more than they want the real estate.
Inheriting a property often represents a loss more than it represents a gain, and they try to sell that home as soon as possible (which costs them time and money from their employees). In fact, it was for these reasons that banks didn’t want to get involved. Without a guarantee that they would see money again, they stayed away from the idea of a mortgage. So when did all this change though? When did insurance companies give up on their dreams of seizing properties and the banks took it upon themselves to give out mortgages? That change started to happen when Franklin D. Roosevelt started getting involved with his New Deal. The Federal Housing Administration insured mortgage lenders against loses. It also set up a 30-year fixed-rate program that helped ensure debts were paid. These changes led to the eventual bank overhaul of the mortgage system. Once homeowners started keeping their homes, insurance companies stopped providing these loans. From there, programs have grown to allow other options. Veterans can apply for a VA home loan for their own houses. The nice thing about VA home loans is that they are easier to get, they don’t require a down payment, and they are generally easier to refinance. Benefits like these are invaluable to one that is looking to settle down after a career in the military. Photo credit: blmiers2 via photopin cc Photo credit: AMagill via photopin cc