A graduated payment mortgage is a loan where the payment increases each year for a predetermined amount of time (such as 5 or 10 years), then becomes fixed for the remaining duration of the loan.
When interest rates are high, borrowers can use a graduated payment mortgage to increase their chances of qualifying for the loan because the initial payment is less. The downside of opting for an smaller initial payment is that the interest owed increases and the payment shortfall from the initial years of the loan is then added on to the loan, potentially leading to a situation called "negative amortization." Negative amortization occurs when the loan payment for any period is less than the interest charged over that period, resulting in an increase in the outstanding balance of the loan.
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Terms, conditions & restrictions apply. Subject to underwriting approval. Application required; not all applicants will be approved. Property insurance and other documentation may be required. Loan secured by a lien against your property. Consolidating or refinancing debts may increase the time and/or the finance charges/total loan amount needed to repay your debt. Fees and charges may apply, and may vary by product and state. Taxes & insurance extra. Appraisal and other fees paid outside of closing (POC) are non-refundable. Important information relating specifically to your loan will be contained in the loan documents, which alone will establish your rights and obligations under the loan plan. Call for details.