Growing Equity Mortgage GEM

A growing equity mortgage (GEM), also known as an early-ownership mortgage, is a graduated-payment mortgage whose payments continue to increase until the loan is paid off. They do not level off after the fifth year like those of a GPM.

There are a wide variety of GEMs. Usually, the first year's monthly payments are the same as those of a traditional 30-year loan. They increase each year by a fixed percentage.

Advantages

Like a 15-year mortgage, a GEM is paid off quickly, and its interest rate is typically 0.25 percent to 0.50 percent less than that of a traditional mortgage. Also, as with a 15-year loan, you would pay less total interest over the life of the loan.

Unlike a 15-year mortgage, it is no harder to qualify for a GEM than it is to qualify for a traditional loan because of a GEM's lower starting monthly payment.

On balance, a GEM would be well suited to someone whose income is rising and who is planning to retire in about 15 years.

Disadvantages.

With a GEM, the payments keep going up whether or not your income goes up with them. In the previous example, the payments increase by more than 70 percent over 15 years. For many people, family income keeps pace with the rising payments. For others, rising payments squeeze the household budget.