Graduated Payment Mortgage
a Florida Home Mortgage Loan
or call us at 808-357-5326
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
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.
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.
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.
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).
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.
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.
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