Graduated Payment Mortgage

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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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

graduated payment mortgage

A home loan structured to provide lower payments in the early years, growing as the homeowners' financial situation hopefully improves. The FHA-insured graduated payment mortgage plan is called a 245 loan.(Do not confuse with the FHA-insured 245(a) program,called a growing equity mortgage.)

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.

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.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.
References in periodicals archive ?
Certain diverse and creative mortgage-related lending products--such as reverse mortgages, interest-only, term adjustable-rate mortgages (ARMs), pledge loans, graduated payment mortgages (GPMs), index swaps, teaser rates and temporary buydowns--are slowly being introduced to the Canada market.
It has offered in recent times a prepayment penalty loan, graduated payment mortgages, A-minus loans with mortgage insurance and high-LTV mortgages.
The industry responded with new products and programs that made the monthly payment affordable, such as graduated payment mortgages (GPMs), temporary buy-downs, and deeply discounted and negatively amortizing ARMs, where the risk was unknown.
As interest rates rose in the late 1970s and early 1980s, mortgage lenders offered such new products as adjustable-rate mortgages (ARMs) and graduated payment mortgages (GPMs), with deeply discounted initial rates and negative amortization.

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