Loan Glossary

Graduated Payment Mortgages:

A type of mortgage where the monthly payments start low but increases by a fixed amount each year for the first five years. The payment shortfall or negative amortization is added to the principal balance due on the loan. The advantages of this type of loan is a lower monthly payment at the beginning of the loan term. The disadvantages are typically a slightly higher rate than traditional fixed-rate mortgage loans and lenders usually require a larger down payment. In addition, the negative amortized amount increases the balance due on the total loan, which can be a problem if the value of the home declines.