Mortgage with scheduled payment increases over time, often used when the borrower expects rising income but accepts higher later payment risk.
A graduated payment mortgage (GPM) is a mortgage with payments that start lower and then rise on a preset schedule before leveling off.
Graduated payment mortgages matter because they shift affordability from the present into the future. They can make homeownership easier to enter when the borrower expects income growth, but they also raise the risk that later scheduled payments become too heavy.
Some GPM structures can also create negative amortization in the early years if the scheduled payment is not high enough to cover the full interest charge.
The central feature is a contractual payment schedule with step-ups over time.
Where:
g is the scheduled growth rate
t is the number of payment-step periods elapsed
| Mortgage type | Payment path | Main tradeoff |
| — | — | — |
| Self-amortizing mortgage | Level scheduled payment | Stable payments, slower early affordability relief |
| Graduated payment mortgage | Starts lower, then rises by schedule | Easier start, higher future payment risk |
| Growing-equity mortgage | Starts higher or rises to accelerate payoff | Faster equity buildup, less early affordability relief |
A borrower expects salary growth over the next decade and chooses a mortgage with lower initial payments that increase every year for seven years. That makes the early payment burden lighter than on a standard level-payment mortgage, but the borrower must be able to absorb materially larger payments later.
An adjustable-rate mortgage changes primarily because the interest rate resets. A GPM changes because the payment schedule itself is contractually stepped upward.
If early payments are too low to cover accrued interest, the loan balance can rise rather than fall for a time.
Growing-Equity Mortgage: Another scheduled-payment variant, but one designed to accelerate payoff rather than maximize early affordability.
Self-Amortizing Mortgage: The standard comparison point with level scheduled payments.
Negative Amortization: A key risk in some early-year GPM designs.
Interest-Only Mortgage: Another way to lower early payments, but through interest-only servicing rather than scheduled step-ups.
Adjustable-Rate Mortgage (ARM): A different mortgage type where payment changes are driven mainly by rate resets.