Growing-Equity Mortgage

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Amortization Schedule

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

    A debt instrument, secured by the collateral of specified real ...
  3. Interest

    1. The charge for the privilege of borrowing money, typically ...
  4. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  5. Graduated Payment Mortgage

    A type of fixed-rate mortgage in which the payment increases ...
  6. Forbearance

    A temporary postponement of mortgage payments.
Related Articles
  1. Understanding Your Mortgage
    Personal Finance

    Understanding Your Mortgage

  2. Make A Risk-Based Mortgage Decision
    Options & Futures

    Make A Risk-Based Mortgage Decision

  3. Understanding The Mortgage Payment Structure
    Credit & Loans

    Understanding The Mortgage Payment Structure

  4. What You Need To Know About Fannie Mae ...
    Investing Basics

    What You Need To Know About Fannie Mae ...

comments powered by Disqus
Hot Definitions
  1. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  5. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  6. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
Trading Center