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 ?
Mortgage contracts with variable repayment schedules are known as graduated-payment mortgages (GPMs).
Low-down-payment loans were paired with experimental new products like adjustable-rate mortgages (ARMs), initial "teaser rates," negative-amortization mortgages and graduated-payment mortgages. When economic conditions deteriorated, particularly in the "Oil Patch" states of Texas, Oklahoma and Louisiana, as well as Alaska, people lost their jobs and foreclosures ensued.
Graduated-payment mortgages and step-rate transactions without a variable-rate feature are not considered variable-rate transactions.
Examples of this kind of product include payment-option adjustable-rate mortgages (ARMs) and interest-only loans, as well as the resurrected graduated-payment mortgages (GPMs), which contain pre-set interest-rate changes.
(HUD tracks early payment defaults and claim payments by originating lender - you should get this information from HUD.) Concentrate on high loan-to-value (LTV) ratio loans, older rather than newer loans, adjustable-rate mortgages (ARMs), graduated-payment mortgages (GPMs), loans on properties in economically depressed regions of the country and especially loans purchased from correspondents.
Interest-only loans and variations of graduated-payment mortgages also are purchased and securitized by Barclays American.