We’ve got a thing for words (in case you couldn’t tell), so we thought we’d take a break from our usual mortgage content to touch on our shared love. Don’t worry, it’s still related to mortgages — but for all you word nerds out there looking to purchase or refinance a home, this blog’s built for you. This week, we’re discussing mortgage etymology and the history of home loans.
Etymology: The origin of a word and the historical development of its meaning.
You might be surprised to learn that the concept of mortgages — home loans — is fairly intertwined with American history, dating all the way back to the 1700s. You may be even more surprised to learn that mortgages date back even further than that. In fact, the earliest use of “mortgage” as a term to describe a long-lasting deal dates back to 14th century France, according to our friends at the Online Etymology Dictionary.
But what’s it mean? Sure, the concept of mortgages is old, but why don’t we just call them “home loans”? What does “mortgage” even mean?
The Dead Pledge: Mortgage Etymology
Like most words, “mortgage” can be picked apart to uncover its true, or original, meaning. Its French origins can actually be traced back to Latin and early German language. In Latin, “mortus” (or “mortuus”) means “dead.” “Gage” stems from the early German vocabulary which translates in old French to “pledge.” When brought together, the word effectively translates to “dead pledge” — called so because, according to the Online Etymology Dictionary, “the deal dies when the debt is paid or when payment fails.”
These days, mortgages work similarly. Once a mortgage is paid off, the house belongs to the buyer. Alternatively, should the buyer forego payments…well, that’s another way the deal could “die”, so to speak. Except these days we call that defaulting on a loan, which ultimately leads to foreclosure.
Comparing These Days To Those Days
So we know the origin of the word “mortgage” is old, but when did mortgages themselves become a thing?
The history’s a little hazy, but the concept of a mortgage — that is one person owing another person money for property — dates back more than a thousand years. English documents from the 1100s detail lender protections in property deals.
Fast forward a bit to the turn of the 20th century, where mortgages had evolved a bit. More similar in nature to today’s loans, but still quite different. For example, back then, down payments of 50% were common. Now, 50% of the average cost of a home back then — let’s say $10,000 — is only $5,000. Doesn’t seem like much these days (especially in the larger scope of things), but consider inflation: A $10,000 house back then would cost more than $350,000 nowadays. Suddenly a down payment of $175,000 seems like a bigger deal, huh?
The remaining would be paid through interest-only payments over a short period of time, usually five years, with the last payment being a principal-only balloon payment. Hardly seems fair, right?
Rethinking Real Estate
Seems backwards to say, but the Great Depression may have actually been a good thing for this country — or, at the very least, a necessary wake up call. The Great Depression led to the creation of the Federal Housing Administration (FHA), which aimed to reduce risk, protect lenders, and promote fairer lending practices to borrowers regardless of background.
To do so, FHA-insured loans came with a handful of…well, let’s call them prerequisites. These “prerequisites” included stringent quality standards, lower down payment requirements, extended loan terms (15 to 30 years, compared to three to five in years prior), and amortization — which means basically means you work on paying down more of your loan’s interest first, while paying off principal debt later.
Where older mortgages saw buyers paying interest only over a period of time, followed by a balloon payment to repay the principal, amortization saw buyers paying interest and principal simultaneously over time.
Modern mortgages are somehow easier and more difficult to obtain. Thanks to the Great Recession (remember 2008?), the market needed regulation. Lenders needed to qualify prospective buyers before handing out mortgages, so the process is certainly more involved than it used to be. For good reason, though — most lenders just want to make sure buyers can afford what they’re borrowing.
At the same time, the digital age has seen an influx of speedy online lenders boasting streamlined experiences. Mortgages are more accessible than ever, but regulations have made them subject to stringent requirements. Like most things in life, it’s give and take.
Those Who Don’t Learn From History…
You’ve heard the old adage. Luckily, thanks to modern mortgage requirements, you aren’t doomed to repeat the mistakes of mortgages past. You know where mortgages come from, you know how they’ve changed over time, and you’re already here.
Maybe you’re ready to buy a house, or maybe you’re just weighing your options. Either way, our team is ready to help you make home happen wherever you’re at in the process.
Mortgages are more accessible than ever, but regulations have made them subject to stringent requirements. Like most things in life, it’s give and take.