Graduated Payments

Graduated Payment Mortgages are loans in which mortgage payments increase annually for a predetermined period of tiem (such as five or ten years), then becomes fixed for the remaining duration of the loan. 

When interest rates are high, borrowers can use a graduated payment mortgage to increase their chances of qualifying for the loan becasue the initial payment is less.  The downside of opting for a smaller initial payment is thaqt the interest owed increases and the payment shortfall from teh initial years of the loan is then added on to the loan, potentially leading to a situation called "negative amortization."  Negative amorttization occurs when the loan payment for any period is less than the interest charged over that period, resulting in an increase in the outstanding balance of the loan.