What is a Graduated Payment Mortgage (GPM)?


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.

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