Aside from food, water, and air, human beings need shelter for safety and security. This is what Abraham Maslow has established in his model of man’s hierarchy of needs. This is the reason why humans have always been invested in securing homes. Wondering what’s the mortgages history and how it transitioned?
It’s surprising that the concept of a mortgage has been around since ancient times, albeit circulated in some other forms. It was not until 1930 when the mortgage industry kicked off in the US.
Today, we’ve seen how the mortgage industry has evolved, to not only satisfy man’s need for shelter. The mortgage industry is developing complex real estate schemes with people getting many housing options bound in legal terms and agreements. This can be quite complex.
But how did mortgages come to be? In this article, we will discuss the history of mortgage and how it has transitioned to what it is now today – a booming part of the real estate industry!
Mortgages History – Ancient Times
Did you know that the concept of a mortgage dates back as far as ancient times? Buying a home with cash has always been a major risk and a financial action that not many people were able to afford. Even back in the old times, there was the a record of mortgage transactions. The archives of the documents from Mesopotamia show mortgage contracts as early as 611 B.C.
One notable mortgage recorded was a contract for loan of money in the sixth year of Nebuchadnezzar II back in 598 B.C. One mana of money belonging to Dan-Marduk was loaned to Kudurru, son of Iqisha-apla, son of Egibi. Yearly, the amount of the mana increased by eight shekels of money. Whatever Kudurru had was pledged to Dan-Marduk.
This is one example of a mortgage transaction that we record during ancient times. It was a clear manifestation that it has indeed been a practice even during the olden times.
Mortgages History – Contemporary Times
It was not until the year 1930 when the mortgage industry took off in a way that more closely represents what we know it as today. Prior to the Great Depression, the requirement was that lenders should ask for 50 percent of the purchase price in cash upfront. Once you shell half of the price, an individual would pay the interest in the succeeding months. Typically, these loans had a mortgage term of five to ten years. The entire loan amount is due at the end of the term. Hence, you have to pay the remaining 50% in a lump sum during the maturity date.
Fortunately, modern mortgages came into being starting the year 1930. During the great depression, the Federal Housing Administration (FHA) had significantly played a significant role in the establishment of new mortgage terms and conditions. This government agency started a program that lowered the down payment requirement. FHA set up programs that offered 80 percent loan-to-value (LTV) and higher. This led to commercial banks and lenders doing the same mortgage scheme, thus creating more housing opportunities for the average American.
Today, the use of mortgages has continued to thrive, and the real estate industry is booming more than ever. In fact, there are over 50 millions home loans in the US alone. You can get offers of Government mortgage loans such as FHA, Veterans Administration (VA) loans, USDA / RHS loans, and many others. Non-government loans or non-conventional loans such as those obtained through banks, financial institutions, and third-party vendors have continued to proliferate. Mortgage schemes have become rather complex in terms of the mortgage note agreement. Most mortgage payments now do not only include the principal amount and interest but also escrowed items such as taxes, insurance, and even Private Mortgage Insurance (PMI). With that being said, there is no doubt that the use of mortgage will continue and, in fact, likely evolve into a complex entity as man’s need for shelter continues to evolve too.