Finance
What is a 'graduated payment mortgage' (GPM) in Delaware?
AA mortgage with payments that increase over time as the borrower's income theoretically increases✓ Correct
BA mortgage with payments that decrease as the balance is paid down
CA mortgage where the interest rate gradually decreases
DA mortgage with payments graduated by loan-to-value ratios
Explanation
A graduated payment mortgage (GPM) begins with lower monthly payments that increase over time (typically for 5-10 years), based on the assumption that the borrower's income will rise. Early payments may be insufficient to cover interest, causing negative amortization.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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