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Graduated Payment Mortgage
A graduated payment mortgage (aka, GPM) offers a very low initial interest rate.
Then, each year
over the first 3 to 5 years, the interest rate is increased. After that initial period,
the interest rate remains constant over the remaining term of the loan.
Graduated payment mortgages can result in
negative amortization during the early years of the mortgage. This means that
you can wind up owing more than you initially borrowed.
Many borrowers who expect their future income to grow choose a graduated payment mortgage
because it allows them to buy a more expensive home. The risk
is that the increased income does not materialize, negative amortization does
occur, and the buyer is forced to sell at the worst possible time.