Loanfactz Definitions

Graduated Payment Mortgage (GPM)

* Mortgage payments that start out small for the first few years of the loan and increase gradually (usually annually) over a period of time until it remains fixed. This enables a borrower with a limited income, an income that is expected to increase substantially in the next 5 to 10 years, to buy a home sooner. Borrowers who are considering using a graduated payment mortgage must remember that their monthly payments to principal and interest will increase each year for up to 10 years (depending on which plan they select) until the payments are sufficient enough to * amortize the loan. A graduated payment mortgage allows for potential * negative amortization in the early years of the loan.

Glossary For This Page
(In Alphabetical Order)

* Amortize
A term used to describe the process of paying off a loan. Amortization means that the monthly payments are large enough to pay the * interest and reduce the * principal on your mortgage. When you make monthly payments that cover both the principal and the interest, you are amortizing the loan.

* Default
Failure to perform a legal obligation; a default includes failure to make the payments on a financial obligation, but may also be a failure to perform some action or service that is non monetary (not relating to money).

* Interest
The cost you pay to borrow money from a lender, expressed as a percentage of the amount borrowed. The interest is calculated in the monthly payment you make to the lender.

* Lien
A claim or charge on property for payment of some debt. With respect to a mortgage, it is the right of the lender to take the title to your property if you do not make the payments due on the mortgage.

* Mortgage
A mortgage is a legal document you sign to show that you have granted the lender a * lien on your property as security for repayment of a loan, giving the lender the right to take your property if you * default on the terms of the loan. Some states call it a deed of trust instead of a mortgage.

* Negative Amortization
Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

* Principal
The amount of money borrowed or the amount of the loan that has not yet been paid back to the lender. This does not include the interest you will pay to borrow that money. The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount owed on the loan at any given time.

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