DEFINITION of 'Graduation Rate'

The percentage increase in the monthly payment on a graduated payment mortgage. The increase occurs at set intervals, usually annually. The interest rate on a graduated payment mortgage is fixed for the life of the loan. The initial monthly payments are set below a fully amortizing payment, and increase at the graduation rate over the graduation period until the payment becomes large enough to amortize the mortgage over its remaining term.

BREAKING DOWN 'Graduation Rate'

Graduated payment mortgages are similar to payment option ARMs in that both will likely have negative amortization. However, unlike a payment option ARM, the exact payments and amount of negative amortization can be known for certain on a graduated payment mortgage.

RELATED TERMS
  1. Growing-Equity Mortgage

    A fixed rate mortgage on which the monthly payments increase ...
  2. Graduation Period

    The period of time on a graduated payment mortgage during which ...
  3. Graduated Payment Mortgage

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

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  5. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  6. Fully Amortizing Payment

    A periodic loan payment, part of which is principal and part ...
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