Adjustable Rate Mortgage

D

The mortgage that starts with unusually low payments that rise over several years to a fixed payment is a Graduated-payment mortgage (GPM). The correct answer is D.

A Graduated-payment mortgage (GPM) is a type of mortgage where the payments start off lower than what is required to fully amortize the loan, and then gradually increase over time until they reach a fixed level. The payments are typically lower in the early years of the mortgage, and increase in later years, usually over a period of five to ten years.

The advantage of a GPM is that it allows borrowers to start with lower payments during the early years of the loan when they may have lower income levels or other expenses. As their income increases over time, the payments gradually increase, allowing the borrower to afford the payments without undue financial stress.

The disadvantage of a GPM is that the overall interest paid over the life of the loan is higher than a traditional fixed-rate mortgage due to the lower payments in the early years. Also, the borrower must be prepared to make higher payments later in the mortgage when their income may not have increased as expected or other expenses may have arisen.

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