The average interest rate for a brand-new U.S. 30-year fixed-rate mortgage reached 7 percent by the end of Oct. 2022 for the first time in over two decades. This is an increase of 7 percent from a year prior that year, at the time mortgage lenders charged homeowners just 3.09 percent on the exact type of mortgage.
Many factors, such as inflation rates as well as the economic outlook overall can affect the rate of mortgages. The primary reason for the upward trajectory has to do with the Federal Reserve’s series interest rate increases that are designed to control inflation. The decision to raise rates by 0.75 percentage point on November. 2 2022 up to as high as 4%, will push the cost of mortgages to a higher level.
Even if you’ve been in mortgage debt for a long time it is possible that you are not familiar with the history behind the loans. This is a topic I teach during my mortgage finance course for business students who are in their first year on Mississippi State University.
The word originates from the middle ages of England. However, the origins of these legal contracts where land is pledged in exchange for an obligation and then becomes the owner of the lender in the event that the loan isn’t repaid are dated back to thousands of years.
Ancient roots
Historical scholars trace the history of mortgage contracts to the time of the king Artaxerxes of Persia who was the ruler of the modern day Iran during the 5th century B.C. The Roman Empire recorded and formalized the legal procedure of pledging collateral to secure a loan.
Most often, they use the temples and forum as their bases for operations, mensarii (which is taken from mensa or “bank” in Latin, established credit and then charge the borrower interest. The public bankers appointed by the government demanded that the borrower provide collateral, be it personal or real property as well as their agreement with regard to the use of collateral could be executed by a variety of methods.
The first, Fiducia, Latin for “trust” or “confidence,” was a requirement for the transfer of the ownership and possession of the property to the lender until the loan was fully paid. It is ironic that this arrangement involved none of trust.
Then Third, The Pignus, Latin for “pawn,” let borrowers keep the ownership of their property, but giving up possession and usage until they had paid their loans.
The Hypotheca, Latin for “pledge,” let borrowers keep ownership and possession while they pay off the debt.
The living-versus-dead-promise
Web 2.0 Claudius introduced Roman laws and customs into Britain during A.D. 43. In the following four years during the period of Roman government along with the later 600 years that are known as the Dark Ages, the British adopted a second Latin word for an assurance for security, or collateral to secure credit: Vadium.
If it is used as collateral to secure the purpose of obtaining a loan, real estate could be offered in the form of ” Vivum Vadium.” The literal meaning of the term can be “living pledge.” Land could be pledged temporarily to the lender, who would use it to earn revenue to pay off the loan. After the lender has accumulated enough revenue to cover the interest and debt it would then transfer the land to the creditor.
The alternative was”dead promise ” Mortuum Vadium” or “dead pledge,” land was given in trust to the lending institution until the borrower was able to completely repay the debt. It was an interest-only loan, with the entire principal payment by the borrower to be made at a later date. If the lender demanded payment, the borrower was required to repay the loan or forfeit the property.
The lender would retain the proceeds of the land, whether it was the income from farming, the sale of timber, or leasing the land to house. In essence, the property was unusable to the lender at the time of the loan, since it did not provide any benefits to the creditor.
In the aftermath of William the Conqueror’s triumph in the Battle of Hastings in 1066 The English language was greatly in the hands of Norman French – William’s language.
This is the way that the Latin word ” Mortuum Vadium” changed to ” Mort Gage,” Norman French for “dead” and “pledge.” ” Mortgage,” an mix of both words was then added to into the English vocabulary.
The right to borrower’s rights are established.
Contrary to today’s mortgages that typically mature in 15 to 30 years’ time, English loan terms in the eleventh and sixteenth century were not predictable. The lenders could demand the repayment at any point. If the borrower isn’t able to pay with their obligations, lenders may demand a court order and the land could be taken away by the borrower and returned to lender.
The borrowers who are unhappy could ask the king about their situation. The king can refer the matter to the lord chancellor who would make a decision as he deemed appropriate.
Sir Francis Bacon, England’s Lord Chancellor from 1618 to 1621 created the Equitable right of Redemption.
This new option allowed borrowers to repay the debt, even if they defaulted.
The formal end of the time period for redemption the property was referred to as foreclosure and is derived by the Old French word that means ” to shut out.” In the present it is an official procedure that allows lenders to get possession of the property that is used as collateral to secure loans.