Which type of mortgage allows for lower initial payments that increase over time?

A graduated payment mortgage is designed to accommodate borrowers who may anticipate future increases in their income. This type of mortgage starts with lower monthly payments that gradually increase at predetermined intervals over a set period, typically five to ten years. This structure allows borrowers to enter homeownership with a more affordable initial payment, which can make homeownership more accessible, especially for those starting their careers or managing tight budgets.

As the payments increase, they align with the expected rise in the borrower’s income, making it a strategic choice for those who foresee better financial conditions in the future. The structure of the graduated payment mortgage helps to balance the initial affordability with the need to eventually cover the total cost of the loan over its term.

In contrast, a fixed-rate mortgage maintains consistent payments throughout the life of the loan, lacking the initial lower payment option. An interest-only mortgage allows borrowers to pay only the interest for a certain period, but it does not feature the graduated increase in payments as a fixed structure. Lastly, a variable-rate mortgage typically adjusts based on interest rate changes rather than scheduled payment increases, which can lead to fluctuations in payments but not in the predictable graduated manner of the graduated payment mortgage.