What economic event altered the outlook for interest-only loans in the 1930s?

The Great Depression significantly altered the outlook for interest-only loans during the 1930s by creating a widespread economic crisis that affected financial stability, lending practices, and borrower requirements. This era saw a dramatic increase in unemployment, a collapse in consumer and business confidence, and a significant decline in property values.

As a result, lenders became more cautious about extending credit. Interest-only loans, which required only the payment of interest with no principal repayment, were viewed as risky in such an unstable economic environment. Borrowers faced challenges in maintaining their financial obligations, and as defaults rose, lenders adjusted their criteria. This led to a shift towards more conservative lending practices, where traditional repayment structures and the ability to pay down principal became prioritized to mitigate risk.

The impact of the Great Depression fundamentally reshaped the mortgage industry, promoting the development of more sustainable loan products and altering how interest rates were set and managed to protect both lenders and borrowers in future economic downturns.