Graduated Payment Mortgages

Everyone loves having his own house. However, all cannot make this dream come true due to limited income. For all these individuals, a graduated-payment mortgage can be the best option.

Graduated payment mortgages (GPMs) have been quite popular for some years. It is just like a type of home loan in which initial payments are small. With time, these payments start increasing and reach the maximum level at maturity. The annual increase in payments remains between 7% and 12%. We also want to mention here that a predetermined amount of time matters a lot. For short-term mortgages, the situation will be different while comparing with long-term loans. The most interesting aspect of GPM is the fixed interest rate. The Federal Housing Administration (FHA) insures almost all types of graduated payment mortgages.

When interest rates are high, borrowers can use a graduated-payment mortgage to increase their chances of qualifying for the loan because the initial payment is less. The downside of opting for a smaller initial payment is that the interest owed increases, and the payment shortfall from the initial years of the loan is then added on to the loan, potentially leading to a situation called "negative amortization." Negative amortization occurs when the loan payment for any period is less than the interest charged over that period. In this way, it increases the outstanding balance of the loan.

Another important aspect of a graduated-payment mortgage is that it is also self-amortizing with negative amortizing. We can divide GPM into two groups. The first one is a loan with a fixed interest rate, but the amount of payment varies. The second group is based on graduated payments that increase yearly. At TopChoice Mortgage, we allow our clients to go for with any plan.

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