Home Loan
Mortgage Types...
With fifty years
of home loan mortgage
evolution, every
conceivable way in
which money can be
lent and paid back
in conjunction with
a home mortgage has been
packaged into a loan
program.
Lets look at the three
basic patterns that
mortgage loan
repayments can
follow: term,
amortized, or
partially amortized.
TERM LOANS
A home loan that
requires interest only mortgage payments
until the last day
of its life, at
which time the full
amount borrowed is
due, is called a
term loan or
straight loan.
Until 30s, the term
loan was the
standard method of
financing real
estate in the United
States. These loans
were typically made
for a short period of 3 to
5 years. The
borrower signed a
note or bond
agreeing (1) to pay
the lender interest
on the loan every 6
months and (2) to
repay the entire
amount of the loan
upon maturity; that
is, at the end of
the life of the
loan. As security,
the borrower
mortgaged his
property to the
lender.
Loan Renewal
In practice, most
real estate short term
loans were not paid
off when they
matured. Instead,
the borrower asked
the lender,
typically a bank
prior to the 1930's,
to renew the home loan
for another 3 to 5
years. The major
flaw in this
approach to lending
was that the
borrower might never
own his property
free and clear of
debt. This left him
continuously at the
mercy of the lender
for renewals. As
long as the lender
was not pressed for
funds, the
borrower's renewal
request was granted.
However, if the
lender was short of
funds, no renewal
was granted and the
borrower was
expected to pay in
full. The borrower
might then go to
another lender. But
there have been
periods during
America's economic
history when loans
have been difficult
to obtain from any
source. If the
borrower's loan came
due during one of
these periods, going
to other lenders did
not solve the
borrower's problem.
With the borrower
unable to repay, the
lender foreclosed
and applied the sale
proceeds to the
amount due on the
loan.
The
inability to renew a
short term loan was the
cause of hardship to
thousands of
property owners
during the first 155
years of U.S.
history, but at no
time were the
consequences so
harsh as during the
Great Depression
that began in 1930
and lasted
most of the decade.
Banks were unable to
accommodate requests
for loan renewals
and at the same time
satisfy unemployed
depositors who
needed to withdraw
their savings to
live. As a result,
owners of homes,
farms, office
buildings,
factories, and
vacant land lost
their property as
foreclosures reached
into the millions.
So glutted was the
market with
properties being
offered for sale to
satisfy unpaid
mortgage loans that
real estate prices
fell at a sickening
pace.
Home
Loan Mortgage To
Amortized Loan
|
