What is A Graduated Payment Mortgage?
A Graduated Payment Mortgage, also known by its acronym GPM, is a specialized fixed rate mortgage. In a normal fixed rate mortgage the payment amount remains a standard payment throughout the entirety of the loan’s term. With a Graduated Payment Mortgage the same is true after a specialized period where the payment starts out smaller then most loans allow but gradually raises, thus being referred to as a graduated payment system. This payment method was developed in order to allow individuals who expect incremental income increases, to allow an proper goal to achieve.
For instance a law student with a secured future will obviously receive a jump in pay from the time of graduation to their inevitable employment. A graduated payment mortgage allows this student to take advantage of the current market rates while keeping the initial payments low.
How Does A Graduated Payment Mortgage Work?
While a Graduated Payment Mortgage is technically a fixed rate mortgage the payment variations and their incremental increases allow the same flexibility initially as a adjustable rate mortgage. Graduated Payment Mortgages offer low initial payments, whether monthly or another type of increase for each year until the payments level off.
This period normally lasts around five to ten years. Like conventional fixed mortgages, a Graduated Payment Mortgage will usually be amortized for a term of fifteen to thirty year terms. They typically also offer slightly higher interest rates.
What Are the Restrictions on Graduated Payment Mortgages?
In a Graduated Payment Mortgage does have a few restrictions, the individual acquiring the mortgage must occupy the property in question as their principal residence. Real estate agents are normally exempt from this kind of loan. The borrower must also be applying for a single family unit dwelling. There are also a few restrictions regarding the available credit score involved in getting a Graduated Payment Mortgage, but as usual this is up to the lender.