Question:

What is a Graduated Payment Mortgage (GPM)?

Answer:

A Graduated Payment Mortgage (GPM) is a mortgage that has a lower starting payment and therefore is easier to qualify for. A GPM home loan may result in negative amortization and may not be preferred by many borrowers but is still better affordable than a 40-year FRM. The monthly payment will start considerably lower and rise over a set number of years (say, 5 or 10) until it reaches a fully amortizing value.

How the Graduated Payment Mortgage (GPM) compares to Buydown loans?

A GPM mortgage loan is not the only one with increasing monthly payments. With a GPM mortgage loan, the borrower knows exactly how their payments will change over the years.

Most common GPM loan period is 5 years with payment increase of around 7%; and 10 years with mortgage payment increase of 3%. The 10-year graduated payment mortgage features less negative amortization.

The same goes for the popular buydown loans. A 2-1 buydown mortgage is a home loan that starts with 2 per cent lower than the respective fixed rate mortgage interest rate. The next year the rate goes up with 1%, and at the beginning of the third year the rate of the buydown mortgage will reach the respective FRM rate.

With a buydown mortgage loan negative amortization is avoided, but there must be someone to sponsor the difference between the buydown rate and the normal fixed rate mortgage payment. The 3-2-1 buydown loan has recently gained significant popularity.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 2.9/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Definitely
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: