What type of mortgage allows the borrower to make lower payments initially that will increase after a set period?

A Graduated Payment Mortgage is designed specifically to accommodate borrowers who expect their income to increase over time. In this type of mortgage, the initial payments are lower than what they would be under a standard repayment plan, making homeownership more accessible for those who might currently be on a tighter budget. After a predetermined period, typically ranging from 5 to 10 years, the monthly payments will gradually increase. This structure allows borrowers to manage their finances better initially while preparing for the anticipated increase in their income that will enable them to comfortably handle higher payments in the future.

In contrast, a Fixed-rate Mortgage maintains the same payment amount throughout the loan term, providing consistent budgeting but without the initial lower payments or the structured increase. An Adjustable Rate Mortgage features payments that can fluctuate with market interest rates, which does not guarantee lower payments initially, and an Interest-Only Mortgage allows the borrower to pay only the interest for a certain period, leading to larger payments later without structured increases linked to income growth. Thus, the Graduated Payment Mortgage uniquely addresses the needs of borrowers anticipating salary growth.