Legal Definitions - graduated-payment adjustable-rate mortgage

A graduated-payment adjustable-rate mortgage is a type of mortgage that combines features of the graduated-payment mortgage and the adjustable-rate mortgage. It allows the borrower to make lower initial payments that gradually increase over time as their income increases. The interest rate on the mortgage can also be periodically adjusted in accordance with fluctuations in some external market index.

For example, a borrower may take out a graduated-payment adjustable-rate mortgage with an initial payment of $500 per month. Over time, the payments will gradually increase to $700 per month as the borrower's income increases. The interest rate on the mortgage may also be adjusted periodically based on changes in the market index.

This type of mortgage can be beneficial for borrowers who expect their income to increase over time but may not be able to afford higher payments initially. However, it also carries the risk of higher payments in the future if the market index increases significantly.