Graduated Payment Mortgages

Many individuals do not qualify outright for a standard Fixed Rate Mortgage (or FRM).  Sometimes, creative methods must be found so that the lender’s risk will be lessened in allowing a particular borrower to take out a loan.  For many potential borrowers, the problem lies in an inability to make the regular monthly payments associated with FRMs.  One way to ease this financial burden at first is through the use of a Graduated Payment Mortgage (or GPM).

With a GPM, the regular monthly mortgage payments start lower than they would on an FRM with a similar principal and interest rate.  Over a period of five years the monthly payment will rise until reaching its maximum at month 61, where it will remain for the rest of the term.  It is important to note that the interest rate does not fluctuate with a GPM.  Your monthly mortgage payments do not increase as a result of an increasing interest rate – it is simply the amount you are paying that increases.

GPMs are great for people who need to save money when obtaining a mortgage, but plan on having a better financial situation within 5 years time.  It is worth noting that in exchange for this graduated payment system, the interest rates on GPMs are usually higher than similar FRMs.