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Reviewed by Casa Academy and updated July 29, 2026 using the current DBPR checklist and Pearson VUE scheduling guidance.

Graduated Payment Mortgage

A graduated payment mortgage (GPM) is a loan program with scheduled payment increases over early years, often used with FHA insurance, so initial payments are below fully amortizing levels and rise later when the borrower's income is expected to grow.

Exam context

Identify GPM by rising payment schedule and possible negative amortization early. Growing equity mortgages increase payments to accelerate payoff without starting below interest due.

Payment schedule mechanics

Early installments may not cover all interest due, causing negative amortization that adds to the loan balance unless later higher payments catch up. Underwriters qualify borrowers using note terms and projected increases. Disclosures must explain balance growth and future payment jumps.

When GPMs appear

GPMs are niche products compared with fixed-rate and adjustable-rate mortgages. They suit borrowers with predictable income growth such as young professionals. Agents should compare total interest cost and equity buildup against standard loans before recommending creative amortization.

Examples

  • Early negative amortization

    Year-one payments cover only part of interest on an FHA GPM. Unpaid interest capitalizes into principal until scheduled payment steps increase enough to fully amortize the note.

  • Income growth assumption

    A medical resident chooses a GPM expecting salary jumps after fellowship. Later payment tiers align with higher earning years if income materializes as planned.

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