888.844.7077
Contact Us | About Us | Home

 

888.844.7077
Contact Us | About Us | Home

 

interest rates application payment
interest rates application payment
home loans

 

Quick Loan Application
 
Figure if you can afford your
DREAM HOME,
Prequalify Today!

 

Quick Loan Application
 
Figure if you can afford your
DREAM HOME,
Prequalify Today!
Simple and Easy Mortgage Loans
Simple and Easy Mortgage Loans

Graduated Payment Mortgage (GPM)

The GPM is another alternative to the conventional adjustable rate mortgage, and is making a comeback as borrowers and mortgage companies seek alternatives to assist in qualify for home financing.

Unlike an ARM, GPMs have a fixed note rate and payment schedule. With a GPM the payments are usually fixed for one year at a time. Each year for five years the payments graduate at 7.5% - 12.5% of the previous years payment.

GPMs are available in 30 year and 15 year amortization, and for both conforming and jumbo loans. With the graduated payments and a fixed note rate, GPMs have scheduled negative amortization of approximately 10% - 12% of the loan amount depending on the note rate. The higher the note rate the larger degree of negative amortization. This compares to the possible negative amortization of a monthly adjusting ARM of 10% of the loan amount. Both loans give the consumer the ability to pay the additional principal and avoid the negative amortization. In contrast, the GPM has a fixed payment schedule so the additional principal payments reduce the term of the loan. The ARMs additional payments avoid the negative amortization and the payments decrease while the term of the loan remains constant.

The scheduled negative amortization on a GPM differs depending on the amortization schedule, the note rate and the payment increases of the loan. GPM loans with 7.5% annual payment increases offer the lowest qualifying rate but the largest amount of negative amortization.

On a loan of $150,000, with a 30 year amortization and a note rate of 10.50% with 12.5% annual payment increases, the negative amortization continues for 60 months. The qualifying rate is 5.75% and the negative amortization is 11.34% (approximately $17,010).

The note rate of a GPM is traditionally .5% to .75% higher than the note rate of a straight fixed rate mortgage. The higher note rate and scheduled negative amortization of the GPM makes the cost of the mortgage more expensive to the borrower in the long run. In addition, the borrowers monthly payment can increase by as much as 50% by the final payment adjustment.

The lower qualifying rate of the GPM can help borrowers maximize their purchasing power, and can be useful in a market with rapid appreciation. In markets where appreciation is moderate, and a borrower needs to move during the scheduled negative amortization period they could create an unpleasant situation.

 1st Rate Home Mortgage, Inc. 
All Rights Reserved

 1st Rate Home Mortgage, Inc. 
All Rights Reserved

888.844.7077
NMLS ID: 37411 | http://www.nmlsconsumeraccess.org/ | Texas Consumer Complaint and Recovery Notice

Alaska, Arizona, California, Colorado, Florida, Hawaii, Idaho, Illinois, Maryland, Michigan, New Mexico, Oregon, Texas, Utah,
Virginia, and Washington
AK37411, AZ0940290, CA BRE-01863044, CA DBO-603G892, FL MLD1188, HI-37411, ID MBL-7153, IL MB.6761146,
MD 21315, MI FL0018183, NM 03711, OR ML-4837, UT 9896852, VA MC-5623, and WA CL37411
 



 

 

 

888.844.7077
NMLS ID: 37411 | http://www.nmlsconsumeraccess.org/ | Texas Consumer Complaint and Recovery Notice

Alaska, Arizona, California, Colorado, Florida, Hawaii, Idaho, Illinois, Maryland, Michigan, New Mexico, Oregon, Texas, Utah,
Virginia, and Washington
AK37411, AZ0940290, CA BRE-01863044, CA DBO-603G892, FL MLD1188, HI-37411, ID MBL-7153, IL MB.6761146,
MD 21315, MI FL0018183, NM 03711, OR ML-4837, UT 9896852, VA MC-5623, and WA CL37411