Graduated Payment Mortgages
Graduated Payment Mortgage is a loan where the payment graduates (increases)
annually for a predetermined period (e.g. five or ten years), and then becomes
fixed for the duration of the loan. During times of high interest rate, borrowers
use them as leverage to be able to more readily qualify (because the initial
payment is less). But the downside is that even though the initial payment is
less, the interest owed is not - and the payment shortfall in the early years
is added back onto the loan, which can result in negative amortization.