Graduated Payment Mortgages: An Option For First Time Home Buyers

A mortgage with a fixed interest rate that starts out with low monthly payments that increase over a specific time frame is called a Graduated Payment Mortgage loan, also known as a GPM. Graduated Payment Mortgages are an attractive option for first time new home buyers and for others that currently don’t have the financial resources to afford higher payments.

The payments of a GPM eventually level off and remain fixed through the remaining course of the loan. Usually, a Graduated Payment Mortgage loan payment will increase annually by 7.5% to 12.5% of the previous year for the first five years of the loan. After this initial period, the loan will remain fixed for the remainder the mortgage. 

GPMs are Geared Towards Increased Future Earnings

GPMs will require the borrower to estimate their future earning potential - how much of a mortgage payment they’ll be able to afford in a few years. Low initial monthly payments of a GPM may help the borrower to qualify for a loan that would probably not otherwise qualify for a fixed rate mortgage of the same amount. GPMs are geared towards borrowers that at the present time can not afford higher payments, but expect to have improved finances down the road. Where borrowers get into trouble is by overestimating their anticipated future earnings and then not being able to afford the increased monthly payments. 

Conforming GPMs and Nonconforming GPMs

As with other types of loans, GPMs are available in 30 year and 15 year terms and can either be conforming or jumbo.  A conforming Graduated Payment Mortgage is a GPM below loan limits that are set by the conforming standards of Fannie Mae (FNMA) and Freddie Mac (FHLMC).  

• One-Family Mortgages: $417,000
• Two-Family Mortgages: $533.850
• Three-Family Mortgages: $645,300
• Four-Family Mortgages $801,950

A jumbo Graduated Payment Mortgage is a home loan that exceeds the above limits.

GPM Prepayment Penalty

A prepayment penalty may exist with some Graduated Payment Mortgages. The borrower may have to pay a penalty if he/she chooses to payoff the mortgage before the loan becomes due. Usually, prepayment penalties decline over a period of time and no longer apply after a mortgage loan is five years old.

When purchasing a new home, borrowers should take time to review the numerous mortgage programs that are available. For first time home buyers, a Graduated Payment Mortgage may be an option worth looking into. If you would like more information on mortgages, visit New Homes Central Lending - the new home mortgage experts. 

[tag]graduated payment mortgages, mortgages, new homes, new home mortgage, mortgage loans,GPM[/tag]

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