Mortgage Rate Options
Graduated Payment
Graduated Payment Mortgages (GPMs) are a type of mortgage designed to help borrowers afford the costs of homeownership by starting with lower initial monthly payments that gradually increase over time. This structure is particularly aimed at borrowers who expect their incomes to rise in the future, making it easier for them to manage larger mortgage payments as time goes on.
Key Features of Graduated Payment Mortgages
Increasing Payments
The defining feature of a GPM is that the payments start at a lower level and then increase at a predetermined rate over a specific period. The increases typically occur annually for the first 5 to 10 years of the loan.
Fixed Interest Rate
Despite the changing payment amounts, GPMs usually have a fixed interest rate for the duration of the loan term.
Negative Amortization
In the early years of a GPM, because the initial payments are set lower than the interest due, negative amortization can occur. This means the outstanding balance of the loan could increase rather than decrease, as unpaid interest is added to the loan's principal balance.
Normalization of Payments
After the period of graduated payments ends, the mortgage payments are recalculated (amortized) to ensure the loan will be paid off over the remaining term. This results in a higher, but stable, payment that includes both principal and interest for the duration of the loan.
If you have questions on whether Graduated Payment Mortgage is right for you, let's chat!
For information purposes only. This is not a commitment to lend or extend credit.
Information and/or dates are subject to change without notice. All loans subject to credit approval.
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