how growing equity mortgages work
a growing equity mortgage effectively allows a borrower to accelerate repayment of their fixed rate mortgage by scheduling additional principal payments that increase over time in addition to paying off the loan early a growing equity mortgage helps to build up home equity faster that the borrower could leverage if needed payments for growth equity mortgages typically rise annually increasing up to 5 per year there is one caveat to this type of financing because payment amounts increase annually homeowners salaries or their ability to pay must also increase to accommodate the larger payments a growing equity mortgage is not to be confused with a graduated payment mortgage a graduated payment mortgage also has a fixed interest rate and payments that increase at set intervals however a graduated payment mortgage also 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 are actually set below what an interest only payment would be this creates negative amortization not interest savings other considerations for gemsapplying for a growing equity mortgage can be the same as applying for other types of mortgages with comparable credit requirements there may be options for lower down payments associated with this type of mortgage some lenders who offer growing equity mortgages target first time home buyers who would otherwise might not be able to afford upfront purchasing costs furthermore these loans are offered to borrowers who might not qualify for conventional mortgages the federal housing administration offers a growing equity mortgage program specifically for this purpose fha guidelines make growing equity mortgages available to borrowers with a limited income but who also have a reasonable expectation of increases to their earnings 1 