An FHA Section 245(a) graduated payment mortgage starts with a lower first-year payment that increases on a predefined schedule, designed for buyers expecting meaningfully higher income soon.
How it works
Starting from the year-1 payment, each subsequent year’s payment compounds by the annual increase rate until the graduation period ends — after which the payment stays flat at that final graduated level for the rest of the loan term.
What this does not include
This computes the payment schedule only — a GPM also involves negative amortization in the early years (payments below the interest-only amount, increasing the loan balance before it starts amortizing down), which this site’s separate negative-amortization calculator addresses.
How to use this calculator
- Enter the year-1 monthly payment, annual increase rate, and graduation period in years.
Frequently asked questions
Who is a graduated payment mortgage designed for?
Buyers who currently have lower income but expect it to grow substantially over the next several years, allowing them to qualify for and afford a home sooner than a standard fixed payment would allow.
What is FHA’s “Plan III”?
One of several standardized GPM payment schedules FHA offers, specifically featuring a 7.5% annual payment increase for 5 years before leveling off — used as this calculator’s example.
Does a GPM involve negative amortization?
Yes, commonly — because early payments are set below what would fully cover interest, the loan balance can grow in the initial years before the increasing payments eventually catch up and begin reducing principal.
