### What is a Graduated-Payment Mortgage (GPM)? - [x] A mortgage with initially low monthly payments that increase over time - [ ] A mortgage with consistently high monthly payments throughout the loan term - [ ] A mortgage with variable interest rates that fluctuate with the market - [ ] A mortgage reserved exclusively for luxury home purchases > **Explanation:** A Graduated-Payment Mortgage (GPM) starts with low initial monthly payments that increase over time. This is designed to help low-income or young homeowners by making initial payments more affordable, with the expectation that their income will increase over time. ### What is the main benefit of a Graduated-Payment Mortgage (GPM)? - [x] Helps low-income or young homeowners by starting with lower monthly payments - [ ] Ensures very low interest rates throughout the entire loan term - [ ] Grants the borrower a fixed payment for the duration of the loan - [ ] Offers a guaranteed ability to refinance at any time > **Explanation:** The main benefit of a Graduated-Payment Mortgage is that it helps low-income or young homeowners by starting with lower monthly payments, making it easier to afford a house initially, with the expectation that their income levels will rise to match higher payments later. ### One of the disadvantages of a Graduated-Payment Mortgage (GPM) is: - [ ] Guaranteed low overall borrowing costs - [ ] Static monthly payment installments - [x] Higher overall expense compared to conventional mortgages - [ ] Immediate reduction in interest rates during economic downturns > **Explanation:** One disadvantage of a GPM is that it results in a higher overall expense compared with conventional mortgages. This is because initial lower payments lead to greater interest over the life of the loan and the payments escalate yearly. ### In what economic conditions is a Graduated-Payment Mortgage (GPM) more attractive? - [ ] High inflation periods - [x] Times of economic growth with rising employment and salaries - [ ] Severe economic recessions - [ ] Stable or stagnant economic conditions with flat wage growth > **Explanation:** A GPM is more attractive during times of economic growth when employment and salaries are increasing. This environment enables homeowners to manage and keep up with the periodic increases in mortgage payments. ### How does a Graduated-Payment Mortgage (GPM) relate to negative amortization? - [x] Early payments are not sufficient to cover the interest accruing, increasing the loan balance initially - [ ] Payments are always lower than conventional loans - [ ] It results in paying off the principal quicker - [ ] The interest rate is reduced after the initial period > **Explanation:** A GPM can involve negative amortization, where the initial payments are not sufficient to cover the interest accruing. As a consequence, the unpaid interest gets added to the loan balance, increasing the total amount owed. ### Which group of people is likely to benefit the most from a Graduated-Payment Mortgage (GPM)? - [ ] Retirees on fixed income - [x] Young professionals with expected income growth - [ ] Investors looking for high-return assets - [ ] Individuals with fluctuating income due to seasonal jobs > **Explanation:** Young professionals with expected income growth are likely to benefit the most from a GPM, as they can manage initially low payments with the expectation that their future higher income will help them handle increasing payment amounts. ### What happens to the monthly payments in a Graduated-Payment Mortgage (GPM) over time? - [ ] They remain unchanged throughout the loan period - [x] They increase by a pre-set percentage each year - [ ] They fluctuate based on market interest rates - [ ] They decrease after an initial high payment phase > **Explanation:** In a GPM, the monthly payments increase by a pre-set percentage each year. This structure assumes that the borrower's income will also increase over time to meet the rising payments. ### What is a potential risk for homeowners with a Graduated-Payment Mortgage (GPM)? - [ ] Decreasing loan balance too quickly - [ ] Risk-free loan adjustments - [x] Inability to keep up with rising payments if earnings do not increase as expected - [ ] Immediate requirement for refinancing > **Explanation:** A potential risk for homeowners with a GPM is the inability to keep up with the rising payments if their earnings do not increase as expected. This financial pressure can lead to potential difficulties in maintaining the mortgage. ### Which statement about Graduated-Payment Mortgages (GPM) is true? - [x] They have an overall expense higher than conventional mortgages. - [ ] They are unaffected by the borrower's income growth projections. - [ ] They guarantee low-interest rates for the first five years. - [ ] They are typically used for commercial properties. > **Explanation:** Graduated-Payment Mortgages have an overall expense that is higher than conventional mortgages, primarily because their initial low payments defer payment of interest, which then accrues and elevates the total costs over the loan term. ### For a Graduated-Payment Mortgage (GPM), the initial period compared to conventional mortgages is characterized by: - [ ] High monthly payments and a high-interest rate - [x] Low monthly payments and deferred interest - [ ] Variable interest rates fluctuating with the market - [ ] No initial payment requirements > **Explanation:** The initial period of a Graduated-Payment Mortgage is characterized by low monthly payments and deferred interest, designed to make it easier for low-income or young borrowers to begin homeownership with the expectation of increasing incomes to handle future higher payments.