Graduated Payment

Repayment terms calling for gradual increases in the payments on a closed-end obligation. A graduated payment loan usually involves negative amortization. These repayment terms are intended for young people who currently have low income but foresee a greater future income. An example would be a mortgage loan initially providing for lower monthly payments, with the payments increasing gradually over a period of time, usually up to 10 years. This is only done with the assumption that the borrower's income will rise during the 10 year period.

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