Mortgages are fairly new though. In America they started in the 1930s and were short term. Unsure when they became longer term committments, but probably not before the 50s or 60s.
I suspect mortgages inflated home values, and that homes would be easier to afford without them. But home ownership rates would also be lower.
I originally used Howstuffworks, it was a bit vague. The wikipedia summary was better. So:
* mortgages before the 1934 reforms weren't quite what we'd recognize as mortgages. They generally didn't cover the full value of the house. And their widespread use seemed fairly new in the 1920s and lead to a crash
* the 1934 act created 15 year mortgages (I was wrong to say 5, that must have been the refinancing timeframe)
* the 30 year mortgage was indeed only introduced in the 1950s. So it's a rather recent tradition
> mortgages before the 1934 reforms weren't quite what we'd recognize as mortgages. They generally didn't cover the full value of the house.
Mortgages now generally don't cover the full value either, though its sometimes possible to get 100% coverage through multiple mortgages of different types; in the 1920s bank mortgages tended to be short term (5 years) and not amortized (that is interest only, with balloon payment due at the end, and limited to about 50% of value; B&L mortgages tended to be fully amortized and up to around 11-12 years, typically limited to 30% when taken as a second mortgage. 80% financing was done by taking one mortgage of each type, often with the expectation of refinancing at the expiration of the bank mortgage.
The popularity of mortgages didn't cause a crash, the general financial crash at the end of the 1920s and the Great Depression caused credit to dry up (and lots of people with mortgages that needed to refinance due to balloon payments, even if they were managing to pay the existing mortgage, to be less credit-worthy even if credit hadn't dried up), which resulted in a mortgage crisis. (While, unlike the 2000s mortgage crisis, the triggering broader market problem wasn't tied to mortgages or mortgaged-backed securities, there is a very close parallel in the two crises in how widespread dependence on short-term ability to refinance caused a foreclosure crisis when both mortgage credit tightened and a broader economic downturn impacted creditworthiness, so that lots of people whose ability to remain in their homes was based on an expected near-term refinance could not secure such refinancing.)
> the 1934 act created 15 year mortgages
The 1934 created the FHA and its mission of guaranteeing qualified 15-year or longer mortgages; 39-year mortgages were actually introduced then (based on an expected 30-year prime working age range), but became most widespread in the post-war boom; the GI Bill and VA loans played a role in this
The book isn't loading that page, but if it's referring to old English mortgages I believe those were loans from the property owner themself. And the buyer wouldn't get the house until they finished the payments. If they failed, they lost everything.
How is that any different than today? When you have a mortgage, you don't own the property; the lender does (only they've also externalized all the risk to the government via Freddie). If you fail, you might not lose everything, but you lose all the non-principal, which is effectively everything for the first half of the mortgage term. And if you fail while the market is down, you can lose even more than you've paid in.
What do you mean lose the non principal? If you buy a $200,000 house with a $40,000 downpayment, you get it back if you default and the house value is unchanged, right?
From what I read back then, you would get nothing unless you had paid everything. So pay in $199,999, miss final dollar, lose house, no money returned.
Yeah, by non-principal, I was primarily referring to interest. On a 30 year mortgage, you're paying almost nothing but interest for the first 15 years. And the realtor/title fees and taxes are losses as well. The above commenter is right to point out that the downpayment goes toward principal, though. In the scenario I posited where the housing market declines, you can still end up in the red though.
Yep.. offer financing is an easy way to raise the base price of a good.
Homes usually though make sense financially. You get something you own in 30 years so you can live in it on retirement income.. or sell it at an appreciated value (so your net housing costs are at least $0 if you are unlucky to not make any money and not have lost value.. And in some cases you can rent it out to generate income. Combine that with a low rate and it seems like a good idea. Higher rates cause lower house prices though so that's not good except we have the problem now of not enough housing so that may mitigate things.
I suspect mortgages inflated home values, and that homes would be easier to afford without them. But home ownership rates would also be lower.