ARMs versus GPMs

Some borrowers confuse ARMs with graduated payment mortgages (GPMs) because GPM borrowers experience an increase in the payments over time. With a GPM, however, you pay less during the first year so you can qualify for a larger loan; then, during the next four years, your monthly payments increase gradually. Thereafter, your payments remain the same for the next 25 years. Your lower monthly payments during the early years of the mortgage offset the higher payments you'll make during the later years. For an example, see Table 4.1.

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