Secret 7 year mortgage nobody wants you to know about...

[Eric Couturier]

Has anyone heard of this?  Im not talking interest for the first 7 years, followed by paying down the principle the other 23 years.  No, Im talking 7 years, paid off, DONE, NOTHING LEFT, NADA, ZILCH!  I don't know if this was a made up story the 95 year old man was telling me how things were "back in the day", or if he was being sincere.  Tried my research online and cannot find anything on it! Is this something we are not supposed to find out about?  Is this something modern banks have forgot about?  Glad to hear comments please!

[Joe Splitrock]

I think 15 year is the shortest I have heard of in the last 20 years, but the industry has changed considerably over time, so obviously this 95 year old could be talking about something available more than 75 years ago. I did a quick check and 75 years ago, in 1941, the average house price was $6900 and average salary was $2050. 

I found your topic interesting and located an article talking about historical mortgages. The article explains before 1930 the mortgages typically had short terms, high down payments and variable rates. The article said until the 1930's the only terms available were 5-10 years. Mortgage debt at that time was around 20% of your income. Loans were typically 50% loan to value. Property values dropped 50% or more during the great depression and foreclosures rates went sky high. As a result the government established the FHA and then Fannie Mae was created in 1938. The purpose was to back loans and encourage banks to lend. In 1948 the maximum mortgage term raised from 20 years to 30 years as a way to stimulate the housing market. I didn't see anything specific in the article that talks about a 7 year loan, but clearly that term would have been common at one time for sure in the 1930's. The article stated back then home owners had to renegotiate their loan rates annually. I think it is fair to say the 7 year loan he is remembering was nothing like our fixed rate, 15, 20, 30 year term loans we have today. It would have had higher down payments and variable rates. Of course we all know when you talk to older people, they remember the good old days.

Full article link:

http://repository.upenn.edu/cgi/viewcontent.cgi?ar...