GPM

GPM

See: Graduated Payment Mortgages

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Graduated Payment Mortgage

A method of amortizing a mortgage such that payments are initially lower than they would be for a comparable mortgage with flat payments, and gradually increase over three, five, or seven years. When payments reach their full amount, they are usually higher than they would have been had the mortgage holder made flat payments over the life of the mortgage. This is because the difference between the initial payments and what the initial payments would have been in a flat payment scheme is added to the principal. A mortgage holder may opt for a GPM if he/she does not have the cash flow for the full mortgage when he/she buys the property, but expects to have it in the future. This entails risk for both the borrower and the lender as those cash flows may or may not be there when the time comes. See also: ARM.

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Graduated Payment Mortgage (GPM)

A mortgage on which the payment rises by a constant percent for a specified number of periods, after which it becomes fully-amortizing.

As an example, the payment might increase by 7.5% every 12 months for 60 months, after which it is constant for the remaining term. GPMs had a brief flurry in the 1980s but then largely disappeared.