Graduated Payment Mortgages are loans that start with low monthly payments that gradually increases at regular intervals. This type of mortgage is perfect for the self employed or any homeowner that expects their future income to increase steadily.

These loans are a type of hybrid mortgage that offer fixed interest rates on a graduated repayment schedule. If you are looking at an interest-only mortgage as a stop-gap measure for financing your home, a Graduated Payment Mortgage might be a better option.

This mortgage starts with very low monthly payments similar to an option mortgage. The initial payment may not be enough to cover the interest due that month; this results in negative amortization for a short period of time. Negative amortization is a bad thing; however, if it allows you to get settled in your new home as a temporary measure, that could be a tolerable amount of risk.

As time progresses, the payment amount gradually increases to cover both the interest and principal balance due. With this graduated payment structure your initial monthly payments will be at least one hundred dollars less than other mortgage options. The repayment schedules these loans follow vary from one lender to the next; it is important to compare loan offers from a variety of lenders to find the best mortgage for you.

The primary advantage of a Graduated Payment Mortgage is the lower initial payments. If you know your income will be increasing 2-3 years down the road, for example if your spouse will be entering the workforce, this type of loan could help your budget.

There is a downside to this type of mortgage; if your income does not increase enough to cover the payment increases you could fall behind on your mortgage. The negative amortization you may experience in the beginning will cost you more than if you had financed with a traditional mortgage; however, the advantage of the lower payment amount could be worth the expense. To learn more about finding the right mortgage register for a free mortgage guidebook.