Graduated Payment Mortgages

A graduated payment mortgage is a loan where the payment goes up every year for a set number of years, like 5 or 10, and then stays the same for the rest of the loan.

When interest rates are high, a borrower with a graduated-payment mortgage has a better chance of getting the loan because the first payment is less than it would be with a regular mortgage. If you choose to make a smaller initial payment, the interest you owe will go up, and the shortfall in payments from the first few years of the loan will be added to the loan. This is called "negative amortization." Negative amortization happens when the loan payment for a given time period is less than the interest charged for that time period. This causes the loan balance to go up.