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.

  1. Interest

    The charge for the privilege of borrowing money, typically expressed ...
  2. Amortization Schedule

    A complete schedule of periodic blended loan payments, showing ...
  3. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  4. Graduated Payment Mortgage

    A type of fixed-rate mortgage in which the payment increases ...
  5. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  6. Encumbrance

    A claim against a property by a party that is not the owner. ...
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