What Is A Graduated Payment Mortgage

By Ben Afzal

Basic Loan Approval Process

At its most basic, a mortgage lender compares your monthly debts with your monthly income.

Your monthly debts include your monthly credit card payments, car payment, student loan, and other payments. It also includes your proposed mortgage loan.

Your monthly income is your pretax income that includes your base salary, commissions, bonuses, rental income, and other sources of income.

Lenders will compare both of these numbers. Lenders generally like to see your debt be no more than 40% of your monthly pretax income, although some will go as high as 55%.

Getting A Bigger, More Expensive House

Many borrowers will have their incomes rise over time. Lenders acknowledge this by giving the borrower a �graduated payment mortgage�.

This loan type allows a borrower to pay less initially and more in later years. The borrower will have to pay at a higher rate in order to pay off the loan in the 30 year term.

Their payment will rise over time, as in theory their income will. This allows a lender to match income and debt over time, not just up front.

This type of loan allows a mortgage borrower to borrow more money than they will initially be able to pay for. It allows a borrower to buy a bigger or more expensive home than they normally would be able to afford.

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