A graduated payment mortgage (GPM) is a type of home loan that is structured with increasing payment amounts for a specified period of time, then reverting to a fully amortizing schedule.
GPMs were one of the best selling mortgages for a period in the 1980s.
It basically targets property buyers whose income were not strong enough to support large loans. So interest rates during the initial years were considerably low.
They are essentially negative amortization loans.
Installment payment requirements will then slowly rise, accompanied by the projected rise in salary of the young borrowers.
For example, a mortgage might be very low and increases by 8% every year for the first 5 years. After which, the loan is recast into a fully amortizing mortgage.
The introduction of teaser rate loans have very much made GPMs irrelevant.
However, with how much criticism teasers have been getting due to the events of 2008, GPMs might still be attractive to some.