Texas Real Estate State Practice Exam

What loan type features payments that increase over time and then stabilize for the remaining term?

1. GPM (Graduated Payment Loan)

2. Adjustable-Rate Mortgage

3. Fixed-Rate Mortgage

4. Interest-Only Loan

The correct answer is: GPM (Graduated Payment Loan)

The correct answer is a Graduated Payment Loan (GPM). This type of loan is designed to accommodate borrowers whose incomes are expected to rise over time. In the initial years, the payments start off lower and gradually increase at specified intervals before stabilizing for the remaining term of the loan. This structure allows borrowers to manage their cash flow during the early stages when they may have lower income, progressively aligning payments with their anticipated financial growth. In contrast, other types of loans do not exhibit this specific payment structure. An Adjustable-Rate Mortgage typically has fluctuating payments based on interest rate adjustments, a Fixed-Rate Mortgage maintains the same payment amount for the entire loan duration, and an Interest-Only Loan allows for lower initial payments but ultimately requires the entire principal balance to be paid in full without any increasing payment features. Each of these alternatives serves different borrower needs and scenarios, but none align with the defined characteristics of a GPM.