Day: November 18, 2017

Graduated Payment Mortgages

If you are a young homebuyer or don't have much to spend towards housing right now but expect your income to increase. A graduated payment mortgage may be just the right mortgage for you.

Graduated-payment mortgages {GPMs} are great favorites among young homebuyers who expect their income to increase steadily in the coming years. Typically, these younger buyers can’t spend very much on housing at the time they apply for a mortgage. This is a long-term, fixed rate mortgage, but the actual interest cost is not reflected in its initial payments.

For the first year, the monthly payments are unusually low, perhaps $150 below those of a fixed-rate loan for the same amount. The next year, the monthly payment increases and continues to increase each year for the next five to ten years. It then begins to stabilize for the life of the mortgage. The stabilized amount us higher than the payment on a fixed rate loan to make up for the initial difference. But, buyers with rising incomes should be able to afford the higher amount.

Money-Saving Move:¬†Take out a GPM during a time when interest rates are high. This will allow you to take advantage of its extra low payments as long as you can–then pay it off with another loan when rates drop. Or take out a loan that combines the features of the GPM and the flexible (many lenders offer such mortgages). These combination loans operate as GPMs initially, then become flexibles with rates tied to the market.

Homebuyers whose jobs require them to move every few years should find a GPM and economical way to buy a home.

What do you think about the GPM? Have you ever heard of such? Let me know in the comments below. Do you think this is the type of mortgage that would work for you? Stick with this series, I have a few more types of mortgages that you may or may not have heard of.