Mortgage Dictionary
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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.
| Warning |
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.