Motgages

Motgages - Graduated Payment Mortgages (GPMs): The payments...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Graduated Payment Mortgages (GPMs) : The payments under GPMs start at a relatively low level and rise for a specific number of years and then become equal after the specified number of years. The level of steps of increase under specified number of years after which the payments become equal depend upon the plan indicated in the mortgage agreement. Example: Consider a 30 year (360 months) term 10% (interest) Traditional Mortgage (TM) for a loan of Rs.100,000. The monthly payments and the break-down between principal and interest would be as follows:- Month Mortgage amount outstanding at the end of month (Rs.) Total monthly installment Interest Principal 0 100, 000 1 99,955.73 877.57 833.30 44.27 2 99,911.12 877.57 832.96 44.61 3 99,866.14 877.57 832.59 44.98 100 93,135.76 877.57 776.96 100.61 101 93,034.32 877.57 776.13 101.44 102 92,932.04 877.57 775.39 102.28 300 41,303.22 877.57 348.60 528.96 301 40,769.84 877.57 344.19 533.38 358 1,733.44 877.57 21.57 860.00 359 870.32 877.57 14.45 863.12 360 0.00 877.57 7.25 870.32 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
GPMs are given below:- Plan Term to Maturity (In Years) Years that Payments Rise % increase per year 1 30 5 2.5 2 30 5 5 3 30 5 7.5 4 30 10 2 5 30 10 3 A comparison between GPM (Plan 3) and a Traditional Mortgage TM is given below:- Years Monthly Payments under GPM Monthly Payments under TM 1 667.04 877.57 2 717.06 877.57 3 770.84 877.57 4 828.66 877.57 5 890.80 877.57 6-30 957.62 877.57 GPMs are preferred by young first-home buyers whose current income is not sufficient to take on a large loan, but whose income is expected to increase rapidly in the near future. In this, with the increase in the monthly payments gradually, mortgage balances increase for a period of 5 years and eventually reaches zero by the end of the term. 2
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

Motgages - Graduated Payment Mortgages (GPMs): The payments...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online