What type of mortgage involves increasing payments for a set period of time before leveling off?

What type of mortgage involves increasing payments for a set period of time before leveling off?

• A. Adjustable Rate Mortgage (ARM)
• B. Graduated Payment Mortgage (GPM)
• C. Fixed Rate Mortgage
• D. Interest-Only Mortgage

Answer: (B)

A Graduated Payment Mortgage (GPM) is specifically designed to accommodate borrowers who expect their incomes to increase over time. With a GPM, the mortgage payments start at a lower amount and increase at predetermined intervals, usually for a set number of years, before leveling off to a stable payment. This allows borrowers the opportunity to manage their cash flow more effectively in the early years of the loan when they may not be able to afford higher payments. For example, a borrower might start with lower monthly payments that increase gradually for the first five years, after which the payments become fixed and remain steady for the remainder of the loan term. This structure is particularly helpful for first-time homebuyers or those starting in their careers who anticipate future income growth. In contrast, adjustable rate mortgages can vary in payment based on market interest rates, and fixed-rate mortgages have stable payments throughout the life of the loan. Interest-only mortgages allow borrowers to pay only the interest during an initial period, which differs significantly from the graduated payment structure.

A Graduated Payment Mortgage (GPM) is specifically designed to accommodate borrowers who expect their incomes to increase over time. With a GPM, the mortgage payments start at a lower amount and increase at predetermined intervals, usually for a set number of years, before leveling off to a stable payment. This allows borrowers the opportunity to manage their cash flow more effectively in the early years of the loan when they may not be able to afford higher payments.

For example, a borrower might start with lower monthly payments that increase gradually for the first five years, after which the payments become fixed and remain steady for the remainder of the loan term. This structure is particularly helpful for first-time homebuyers or those starting in their careers who anticipate future income growth.

In contrast, adjustable rate mortgages can vary in payment based on market interest rates, and fixed-rate mortgages have stable payments throughout the life of the loan. Interest-only mortgages allow borrowers to pay only the interest during an initial period, which differs significantly from the graduated payment structure.