Home Loans 101: What is "Graduated Payment?"

What is a "graduated payment" in a mortgage?

A graduated-payment mortgage (GPM) is a type of fixed-rate mortgage designed to make homeownership more accessible to borrowers who anticipate their income will increase over time.

This mortgage begins with lower monthly payments that gradually increase each year, typically by a rate of 7% to 12%, until they reach a predetermined higher level. The initial payments are set at a lower base level, making the loan more affordable in the early years. Over the term of the loan, these payments continue to rise annually according to the schedule outlined in the loan agreement, eventually stabilizing once the full payment amount is reached.

This structure is particularly beneficial for individuals who expect their earnings to grow steadily, allowing them to manage smaller payments initially while planning for larger payments as their financial situation improves.