What type of mortgage is characterized by lower initial payments that increase over time?

A graduated payment mortgage is a specific type of loan that is designed to help borrowers who may have lower income initially but anticipate that their earnings will increase over time. This type of mortgage features lower initial payments that gradually increase at predetermined intervals, typically for a set number of years. The structure allows borrowers to ease into their financial obligations while also planning for future income changes.

As the payments increase, the borrower is able to accommodate the higher costs due to their expected rising income. This aspect makes graduated payment mortgages particularly appealing for first-time homebuyers or those entering a career path that promises salary growth.

In specific comparisons, a fixed-rate mortgage maintains a consistent payment throughout the life of the loan, providing stability but no flexibility in initial payment amounts. An adjustable-rate mortgage features fluctuating payments based on market interest rates, which can lead to unpredictability in monthly obligations. Lastly, a balloon mortgage consists of smaller payments leading up to a larger final payment at maturity, which differs from the gradual increase pattern of graduated payment mortgages.