A Graduated Payment Mortgage (GPM) is a type of fixed-rate mortgage where the monthly payments start low and gradually increase over a specific period. This option can be beneficial for young homeowners or those expecting increased income in the future.
How Does a GPM Work?
Lower Initial Payments: The initial monthly payments are lower than what they would be with a traditional fixed-rate mortgage.
Payment Increases: Over a predetermined period (usually 5-10 years), the payments increase at a fixed rate each year.
Stabilization: After the payment increase period, the payments level off and remain constant for the remainder of the loan term.
Key Points
Negative Amortization: In the early years, the payment may not fully cover the interest due, causing the loan balance to increase.
FHA Insurance: Most GPMs require FHA mortgage insurance.
Income Growth: This mortgage type is ideal for people expecting income growth to match the increasing mortgage payments.
Pros and Cons
Pros:
Lower initial payments can help with affordability.
Fixed interest rate provides stability.
Cons:
Payments increase over time, which can be a burden if income doesn't rise as expected.
Negative amortization can lead to a higher overall loan cost.
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Sure you can Graduated Payment , if you have good grades in your upper level studies or above.
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