GPM Graduated Payment Mortgage
Hawaii home loan GPM is another alternative to the conventional
adjustable rate mortgage, and is making a comeback as borrowers
and mortgage companies seek alternatives to assist in qualify
for home financing here in Hawaii. Unlike
the Hawaii home loan ARM, GPMs have a fixed note rate and payment
schedule. With a Hawaii GPM the payments are usually fixed for
one year at a time. Each year for five years the payments graduate
at 5.5% - 8.5% of the previous years payment. This is an attractive
option for people wanting to buy a home here in Hawaii, especially
for areas like Oahu abd Maui where is home loans are 20% higher
than on other islands.
GPMs are available in 30 year and 15 year amortization, and for
both conforming and jumbo loans. With the graduated payments and
a fixed note rate, Hawaii Loan GPMs have scheduled negative amortization
of approximately 10% - 12% of the loan amount depending on the
note rate. The higher the note rate the larger degree of negative
amortization. This compares to the possible negative amortization
of a monthly adjusting Hawaii home loan ARM of 10% of the loan
amount. Both loans give the Hawaii loans the ability to pay the
additional principal and avoid the negative amortization. In contrast,
the Hawaii GPM has a fixed payment schedule so the additional
principal payments reduce the term of the loan. The ARMs additional
payments avoid the negative amortization and the payments decrease
while the term of the loan remains constant.
scheduled negative amortization on a GPM differs depending on
the amortization schedule, the note rate and the payment increases
of the loan. GPM loans with 7.5% annual payment increases offer
the lowest qualifying rate but the largest amount of negative
note rate of a Hawaii GPM is traditionally .5% to .75% higher
than the note rate of a straight fixed rate mortgage. The higher
note rate and scheduled negative amortization of the Hawaii home
loan GPM makes the cost of the mortgage more expensive to the
borrower in the long run. In addition, the borrowers monthly payment
can increase by as much as 50% by the final payment adjustment.
lower qualifying rate of the GPM can help borrowers maximize their
purchasing power, and can be useful in a market with rapid appreciation.
In markets where appreciation is moderate, and a borrower needs
to move during the scheduled negative amortization period they
could create an unpleasant situation.