Many home buyers have heard about adjustable-rate mortgages (ARMs). They typically have the advantage of lower mortgage payments than fixed-rate mortgages. This enables the home buyer to get a larger mortgage and buy a more expensive home. An ARM comes with the risk that if interest rates rise substantially, the home buyer may be unable to afford the adjusted mortgage payment. With a fixed payment for several years, the home buyer may decide the risk is worth the advantages.
The Federal Housing Administration (FHA) has several loan programs for home buyers who have trouble qualifying for the mortgage they need to buy the house they want. An interesting but seldom-seen mortgage is the Graduated Payment Mortgage (GPM). These loans have a 30-year fixed interest rate but have lower payments in the first 5 or 10 years of the loan. The payments are scheduled at the beginning of the loan to increase over the first years, paying significantly more of the principal down. In the first few years, they may even have negative amortization. These loans can make sense for new employees or others who expect their income to increase steadily during the first years. The payment increase is scheduled to be 2% to 7.5% each year during the initial period. You can learn more about Graduated Payment Mortgages and other mortgage loans at https://julianalee.com/reinfo/mortgage.htm.
