Graduated payment mortgage (GPM) is a mortgage which the payments start low and rise over time. Since the initial payment is used to qualify the borrower, the GPM may allow a borrower to qualify who would not qualify with a standard fixed-rate mortgage.

A good candidate for this mortgage type would be a new doctor that has just finished residency, since their first year in practice their salary is considerably low compared to their projected income for the following years.

Graduated payment mortgages (GPM) are normally available in 30 year and 15 year amortization. Over a period of time, normally 5 to 10 years, the monthly payments increase yearly by a pre-agreed percentage. For example, a borrower with a 30 year graduated payment mortgage might have a 6% increase for the first 5 years. The mortgage payment will increase by 7% for the first 5 years, and then stabilize for the remaining 25 years.

The advantages to a GPM - A borrower who knows that their income will increase can make a larger purchase than what they would qualify for at the current time.

The disadvantages to a graduated payment mortgage - If the income does not increase, as anticipated, the borrower might not be able to afford the monthly payments as they increase. GPM normally have a higher interest rate than a fixed rate mortgage, as there is more risk for the lender.