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Growing-Equity Mortgage


A Growing-Equity Mortgage (GEM) is a type of home loan where the borrower makes increasing payments over time. The initial payments are set at a low level, similar to a traditional fixed-rate mortgage. Then the amount increases according to a predetermined schedule, allowing for quicker repayment of the loan and less accrued interest.


The phonetics for the keyword “Growing-Equity Mortgage” would be: Growing: /ˈɡroʊ.ɪŋ/Equity: /ˈɛkwɪti/Mortgage: /ˈmɔːrɡɪdʒ/Complete: /ˈɡroʊ.ɪŋ ˈɛkwɪti ˈmɔːrɡɪdʒ/

Key Takeaways

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  1. Growing-Equity Mortgage (GEM) is a type of mortgage in which the borrower increases their monthly payments over time. These additional funds directly lower the principal amount, which in turn, reduces the term of the loan.
  2. The advantage of a Growing-Equity Mortgage is that it allows the homeowner to pay off their mortgage faster and pay less in total interest due to the quicker repayment of the principal. This type of payment arrangement may be beneficial for those expecting their income to increase over time.
  3. However, the downside of a GEM is that it requires higher payments over time which may not be suitable for everyone. Additionally, as the extra payments go towards the principal and not interest, one cannot claim them for tax deductions.



A Growing-Equity Mortgage (GEM) is an important business/finance concept because it allows for faster equity growth in the property, enabling borrowers to pay off their mortgages sooner. It is designed to have an increasing monthly payment scheme over time, corresponding to the expected growth in borrower’s income. As a result, not only does the mortgage holder pay off their principle faster, but it also helps to save considerable amounts in interest over the life of the loan. Despite requiring higher payments over time, GEMs offer potential home buyers an innovative financing option to traditional fixed-rate mortgages and may be particularly beneficial for those who anticipate their income to rise consistently in the future.


Growing-Equity Mortgages (GEMs) are specifically designed to help homeowners pay off their mortgage loans faster by gradually increasing their monthly payments over time. The purpose of such a structure is to reduce the lifespan of the mortgage loan and mitigate the accrued interest. The additional money that is put toward the loan is applied directly to the principal, accelerating its repayment. Thus, GEMs are most beneficial for borrowers who anticipate their incomes to rise in the future and are seeking to pay off their mortgage sooner, without resorting to a shorter amortization period which would entail larger monthly payments from the start.Also, GEMs can be powerful tools in times of high-inflation. In such periods, debtors benefit because the real value of their fixed loan payments decreases. But lenders, anticipating a fall in the real value of future loan repayments, typically increase interest rates to compensate. GEMs can provide a way out of this conundrum. These mortgage loans offer lenders more security as they are based on expectations of rising income, which will result in proportional increments to loan repayments, thus maintaining lenders’ income streams in real terms. Borrowers who are confident in their pending income growth can also benefit from lower initial repayments and quicker equity build-up in their property.


A Growing-Equity Mortgage, also known as a GEM, is a type of loan where the borrower increases their payments over time, allowing the mortgage to be paid off faster. Here are three real-world examples:1. Home Ownership: Someone buys a new home using a growing-equity mortgage. They’re confident in their future financial prospects as they expect their income to rise steadily over the years. They get a GEM where the payments start low and increase by 3% each year. By doing this, they are able to pay off the mortgage quicker than a traditional 30-year mortgage. 2. Investment Properties: An experienced property investor who has a stable cash flow from other properties might choose a GEM for a new property. As the rent from the property increases over time, he uses the extra income to meet the rising payments of the GEM. This allows the investor to clear the mortgage faster, with the benefit of transforming the property into a cash-positive asset sooner.3. Commercial Real Estate: A business owner buys an office building using a GEM. The business is growing rapidly and they’re confident in their future revenues. They match the timeline of the increased mortgage payments with their projected business growth and revenue, allowing them to pay off the loan ahead of time and freeing up more capital for other business expansions or ventures.

Frequently Asked Questions(FAQ)

What is a Growing-Equity Mortgage?

A Growing-Equity Mortgage (GEM) is a type of mortgage agreement in which the borrower increases their monthly payments over time. The additional amount is directly applied to the principal balance, allowing the borrower to pay off the mortgage earlier.

How does a Growing-Equity Mortgage benefit borrowers?

GEM benefits borrowers by allowing them to pay off their mortgage quicker. As the borrower’s income increases over time, this type of mortgage utilizes the increased income to pay off the mortgage in a shorter period, eventually reducing the total interest paid.

Is a Rising Income a prerequisite for securing a Growing-Equity Mortgage?

Typically, a GEM is ideal for borrowers who anticipate their income to increase over the loan tenure. It’s not a strict prerequisite, but it makes managing the increasing payments more manageable as the borrower’s income increases.

Are there any potential risks or drawbacks to a Growing-Equity Mortgage?

Yes, a significant potential drawback is that the increasing monthly payments require the borrower’s income to increase at the same or faster pace. If the borrower’s income does not increase as expected, they may struggle to meet the rising payment obligations.

Is Growing-Equity Mortgage available for all types of properties?

The availability of GEMs can depend on the lender and the borrower’s qualifications. Generally, they can be secured for both residential and commercial properties, but the specifics depend on individual lender policies.

Can the increased payments in a Growing-Equity Mortgage go towards interest?

No, the additional payments in a GEM typically go straight towards the principal balance, not interest. This allows for the loan balance to be paid down more rapidly.

Who is the ideal candidate for a Growing-Equity Mortgage?

The ideal candidate for a Growing-Equity Mortgage is a borrower who expects a steady rise in their income over time and can afford escalating mortgage payments. This might include professionals in fields with predictable pay ascents, such as medicine or law.

Can I refinance a Growing-Equity Mortgage?

Yes, like other types of mortgages, a Growing-Equity Mortgage can be refinanced. However, the benefits of refinancing would depend on the specific terms of your existing mortgage and the new loan terms.

Related Finance Terms

  • Amortization
  • Real Estate Financing
  • Increased Monthly Payment
  • Accelerated Payoff
  • Graduated Payment

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