Graduation Period

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DEFINITION of 'Graduation Period'

The period of time on a graduated payment mortgage during which the monthly payment rises by a certain percentage at set intervals, usually annually. The interest rate at which monthly payments are set to increase by is fixed over the entire graduation period. If the actual payment is less than what an interest-only payment would be, negative amortization is created.

INVESTOPEDIA EXPLAINS 'Graduation Period'

Graduated-payment mortgages are similar to payment option adjustable-rate mortgages (ARMs); however, a graduated-payment mortgage is a fixed-rate mortgage. The benefit of a graduated-payment mortgage over a payment option ARM is that the borrower knows in advance, and for certain, what the payments and remaining principal balance of the mortgage will be over the entire life of the mortgage.

RELATED TERMS
  1. Graduated Payment Mortgage

    A type of fixed-rate mortgage in which the payment increases ...
  2. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  3. Deferred Interest

    The amount of interest that is added to the principal balance ...
  4. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  5. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  6. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
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