How to Get a Graduated Payment Mortgage (GPM)
What it is
A graduated payment mortgage, or GPM, is a mortgage where the payment starts low and then rises over time. The initial payment is used to qualify the borrower and can be used to obtain a mortgage on a more valuable home, for which the borrower would not otherwise qualify. A lower interest rate in the initial stages of the loan allows for a smaller monthly payment early on and then later the interest rate rises as does the payment. The payment on the graduated payment mortgage rises each year for five consecutive years. The interest rate will remain the same for the remainder of the term.
Lenders typically charge a higher rate for graduated payment mortgages because they typically feature rising balances. Different graduated payment mortgages have different rates of payment increase over different terms. Some start at three percent over 10 years and other begin at 7.5 percent for five years. Buydown mortgages also feature lower initial payments in the early years, followed by larger payments later on. Some types of adjustable rate mortgages also have this feature. With graduated payment mortgages, borrowers will know exactly when and how much their payments will rise.
Who it's for
The graduated payment mortgage is affordable for many people who are just starting out in their careers and expect their incomes to rise in the near future. It allows them to spend more on a home now with an investment for the future. Graduated payment mortgages also carry some risk to the borrowers who must be able to afford the scheduled rise in payments over the years.
What you need to do to apply
In order to obtain a graduated payment mortgage, interested applicants will need to contact a local lending institution and inquire about the different options and rates available. Personal and financial history, including a credit report, will need to be made available to the lending institution. A property appraisal may also be required.
