A graduated payment mortgage is conventional loan that contains a fixed rate for the life of the loan, but graduates (or increases) the payment during a certain period.

Example:
A 6.5% payment increase for the first five years of the loan, and then the payment becomes fixed at that level for the remainder of the loan.

The lower qualifying rate of the GPM can help borrowers maximize their purchasing power, and can be useful in a market with rapid appreciation. In markets where appreciation is moderate, and a borrower needs to move during the scheduled negative amortization period they could create an unpleasant situation.

 

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