Texas Real Estate Sales Agent ExamFinancingEasy
A buyer is pre-approved for a conventional loan but is concerned about the initial monthly payments. Which loan feature could help reduce their early payments by deferring a portion of the interest?
- AFixed-rate mortgage
- BGraduated Payment Mortgage (GPM)
- CAdjustable-Rate Mortgage (ARM)
- DBalloon payment mortgage
Show answer & explanationAnswer & explanation
Correct answer: B. Graduated Payment Mortgage (GPM)
A Graduated Payment Mortgage (GPM) is designed to help borrowers with increasing income potential by starting with lower monthly payments that gradually increase over a set period, typically deferring some interest.
Why the other options are wrong
- A. A fixed-rate mortgage has constant payments throughout the loan term and does not defer interest.
- C. An Adjustable-Rate Mortgage (ARM) has interest rates that change periodically but doesn't inherently defer interest to reduce initial payments.
- D. A balloon payment mortgage requires a large lump sum payment at the end of the loan term, not lower initial payments.
Graduated Payment Mortgage (GPM)
A mortgage with lower initial monthly payments that gradually increase over a specific period, often deferring some interest.
- Payments start low and increase over time.
- Designed for borrowers expecting higher future income.
- Can result in negative amortization in early years.
Memory trick: Gradually rising payments for future financial gains.