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Graduated Payment Mortgage (GPM)


A Graduated Payment Mortgage (GPM) is a type of mortgage in which the payment starts out low and gradually increases over time. This is designed to match the borrower’s expected increase in income, making the mortgage more manageable in its early stages. However, it also often leads to negative amortization in the beginning, which means the loan balance could increase because the initial payments don’t cover the full interest due.


Graduated Payment Mortgage (GPM) in phonetics is pronounced as:- Graduated: /ˈgraːdʒueɪtɪd/- Payment: /ˈpeɪmənt/- Mortgage: /ˈmɔːrɡɪdʒ/- GPM: /ˈdʒiː ˈpiː ˈem/ Please note, pronunciation might vary slightly based on regional English accents.

Key Takeaways


  1. A Graduated Payment Mortgage (GPM) is a type of mortgage in which the repayment terms gradually increase over time. The aim of GPM is to accommodate borrowers who expect their income to rise in the future, thus making it easier for them initially to afford a home.
  2. The initial payments in a GPM are comparatively lower and gradually rise over a specific period, and after a certain point, they stay constant. This initial lower payment period can range between five years to ten years. However, the drawback of the Graduated Payment Mortgage is negative amortization — a situation when the borrower’s loan balance increases rather than decrease because the initial payments do not cover the full interest amount.
  3. GPMs are typically aimed at first-time homebuyers or those who expect a significant increase in their income over the coming years. The borrower needs to have a clear understanding of the implications of negative amortization and make an informed decision considering their financial future.



A Graduated Payment Mortgage (GPM) is crucial in the realm of business and finance as it provides an opportunity for home buyers who anticipate their incomes to rise in the future. It’s a type of mortgage that starts with relatively small but increasing payments, enabling buyers, especially those in the early stages of their careers, to purchase homes they might not qualify for with a standard mortgage plan. Furthermore, it can make home ownership more accessible and thereby can stimulate economic growth. However, the potential drawback is a higher cost over the lifetime of the loan due to the added interest of delayed high payments, making it critical for buyers to understand the full implications of this mortgage type.


Graduated Payment Mortgage (GPM) is primarily designed to assist borrowers who expect their income to rise over the years. This unique type of mortgage often appeals to young adults who are at the beginning of their professional careers and anticipate a certain trajectory of earnings increase. By offering low initial payments that gradually increase over a predetermined period, GPM provides an opportunity for such individuals to purchase homes that they may otherwise be unable to afford under the traditional fixed rate or adjustable rate mortgage arrangements.While a GPM may entail higher costs in the long run due to the accumulation of deferred interest, known as negative amortization, it serves specific functions for certain borrower groups. For instance, in a housing market with escalating prices, a GPM allows a borrower to lock in a home at the current market price, while aligning their payment capacity with future income growth. Therefore, its key purpose is to offer a more flexible payment schedule that fits the expected income growth of borrowers, hence facilitating homeownership for individuals at an earlier stage in their career.


1. Homeownership Programs: A number of local and state government programs in the U.S. use GPMs to help low to moderate-income families purchase homes. The loan starts with smaller payments allowing for the borrowers to gradually adjust their budget as the payments increase over time. 2. Young Professionals Buying Homes: A recent medical school graduate lands a job at a reputable hospital with a promising career ahead. Expecting substantial incremental salary hikes in the future, they opt for a Graduated Payment Mortgage, allowing them to buy a more expensive house than they could currently afford, with comfortable small payments initially that will increase over time matching their expected income increase.3. Real Estate Investors: A real estate investor may use a GPM to finance a rental property. The investor might expect the rental income from the property to increase over time, so he/she takes out a GPM. The mortgage payments are low at first when the rental income might be lower, but as the rents increase, so do the mortgage payments.

Frequently Asked Questions(FAQ)

What is a Graduated Payment Mortgage (GPM)?

A Graduated Payment Mortgage is a type of mortgage loan where the repayments start at a relatively low amount that gradually increases over a specific timeframe. This is designed to accommodate borrowers who anticipate their income to grow over time.

How does a Graduated Payment Mortgage differ from a standard mortgage?

Unlike a standard mortgage where the payments remain constant throughout the term, GPMs have increasing payments over the years. This can be useful for borrowers who expect income growth over time.

Why would someone choose a Graduated Payment Mortgage?

A person might choose a GPM if they are in a situation where their income is expected to grow in the future, such as new graduates entering their profession or people expecting promotions or raises.

Are there any risks associated with a Graduated Payment Mortgage?

Yes, there are risks. If the borrower’s income doesn’t increase as anticipated, they may struggle to meet the escalating payments. Additionally, during the early years of the mortgage when the payments are low, the loan balance may increase (instead of decrease) if the payments are not covering the interest due.

Can I pay more than the required amount in the early years of a Graduated Payment Mortgage?

Yes, if your mortgage agreement allows for prepayment without penalty, you can make larger payments in the early years, which can help to reduce the balance of your mortgage faster.

Does the interest rate change with a Graduated Payment Mortgage?

No, the interest rate on a GPM is typically fixed. However, because initial payments often go more towards interest and less to the principal, the balance can initially increase, a phenomenon known as negative amortization.

What happens when I reach the end of the graduated payment period?

After the graduated payment period (often 5 to 10 years), the borrower will start making equal payments for the remaining term of the loan. These payments are typically higher than the initial payments, but will now begin to reduce the loan balance.

Are Graduated Payment Mortgages common?

While GPMs are available, they are less common than traditional fixed-rate or adjustable-rate mortgages. They are typically used in more specific circumstances, such as when an individual anticipates significant income growth.

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