Mortgages in the 20th Century

In the early part of the century, most home mortgages were three- or five-year balloon mortgages, meaning that borrowers paid a small amount each month over the course of the loan and had a large payment due at the end. Homeowners typically arranged a subsequent mortgage to pay off the first, but during the Depression, it was difficult to get another mortgage, resulting in the housing crisis.

 

The fifteen-year mortgage had an unchanging interest rate and was fully amortized—through a series of equal monthly payments, borrowers paid off the principal all along the way. Since the mortgage was longer, borrowers paid more interest over the life of the loan, but monthly payments were also more manageable for middle- and working-class borrowers. The new mortgages were so favorable for consumers that banks and savings and loans had to change to long-term mortgages to compete.