Growing-Equity Mortgage

DEFINITION of 'Growing-Equity Mortgage'

A fixed rate mortgage on which the monthly payments increase over time according to a set schedule. The interest rate on the loan does not change, and there is never any negative amortization. In other words, the first payment is a fully amortizing payment. As the payments increase, the additional amount above and beyond what would be a fully amortizing payment is applied directly to the remaining balance of the mortgage, shortening the life of the mortgage and increasing interest savings.

BREAKING DOWN 'Growing-Equity Mortgage'

Don't confuse a growing-equity mortgage with a graduated payment mortgage. A graduated payment mortgage also has a fixed interest rate and payments that increase at set intervals, but a graduated payment mortgage has negative amortization. In other words, unlike a growing-equity mortgage, the initial payments on a graduated payment mortgage are set below what a fully amortizing payment would be (they're actually set below what an interest only payment would be). This creates negative amortization, not interest savings.

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