Six Mortgage Facts That May Surprise You

If you’re the curious type, the word mortgage may have piqued your interest at some point in your life. Maybe you’re looking into the possibility of buying a home and this is the first time you’ve asked yourself, “What does it mean? What a weird word!”

Well, worry not, we have all the strange and surprising facts about mortgages right here. In one place! Sit back, sip your latte, and have a look.

1. The Curious Etymology

Word-lovers may have noticed a macabre, sinister term peering out at them from the prefix of mortgage. If you saw death there, you’re not mistaken. It derives from Old French according to the OED. “Mort,” meaning dead, comprises the beginning, and “gage” brings up the end, which means pledge. Mortgage is literally translated, “death pledge.”

Though it sounds dismal, the idea is that a person who is loaned money to buy a house promises to pay for it, giving them the opportunity to eventually own the home. When the loan is paid off, it is amortized, which means to “kill it off.” So it’s not all gloomy!  

2. Curiouser and Curiouser

In late 1981, interest rates for mortgages inflated to rather astronomical levels. At the time, the average rate for a 30-year fixed-rate loan was 18.45%. These drastic climbs were fueled by market changes, a recession, high unemployment, and the central bank attempting to stabilize the economy.

3. Hello Down There

What goes up, must come down, they say. Flash-forward some 30 years and average interest rates for a 30-year fixed-rate mortgage had dropped to historical lows of 3.31%. Even lower than that, the rates for 15-year fixed-rate loans had gone below 3%. Just from history we can see that rates fluctuate. Waiting for lower interest rates to buy a house may not be a great idea, since they’re just as likely to go up as they are down.

4. No Credit Score, No Bueno

While it’s not in your best interest to have a low credit score, it may be even less ideal to have no credit score. Though many frugal-minded people like to pay cash for purchases and prevent themselves from overspending (go you!), having no record of paying your bills on time makes it difficult for a lender to see that you pay your debts. This credit history is provided to them in the form of a credit report. It allows possible mortgage lenders to determine that you’ll take the loan seriously and work hard to pay back the loan.

5. Even the Rich Get Mortgages

This is a fun one. Some people do get incredibly low interest rates, like Mark Zuckerberg, who only pays 1.05% interest on his near $6 million home. Because the current rate of inflation is between 2 and 3%, and his interest rate is well below that, the Facebook CEO is basically borrowing money for free!

6. Income Is More Important than Assets

You scrimped and saved to have a nice chunk of change in the bank (go you, again!), but what’s surprising is that assets like these are less important than your monthly income—more accurately, your debt-to-income ratio, which compares what you owe or pay on a monthly basis to what you earn. But the money in the bank isn’t a bad thing, especially if you use it to help with a down payment. However, being able to meet your monthly financial obligations regularly is king, here.

Who knew mortgages could be so entertaining? We did! And sharing all that with you is what we live for. The more you know...the better you are equipped to benefit from the possibilities of homeownership with a great loan.

Sources:
www.fool.com/mortgages/2017/03/08/13-mortgage-facts-that-might-surprise-you.aspx

www.federalreservehistory.org/essays/recession_of_1981_82
www.businessinsider.com/mark-zuckerburg-is-so-rich-he-lives-in-his-6-million-house-for-free-2012-7
home.howstuffworks.com/real-estate/buying-home/mortgage2.htm

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