The first period of the program begins with a low payment and, as the borrower begins to earn more monthly income, the payments increase.
Based on a government index-borrowers will typically make increased payments by paying down the principal at a faster rate.
Annual growth equity mortgage payments can increase anywhere between 1-5% each year.
Pros & Cons
One major benefit of a growing equity mortgage payment plan is being able to obtain equity in ones home at a far quicker pace. When a homeowner has equity in their possession/home, this can be very crucial and helpful at the same time, in the event where the homeowner chooses to lend and adverse against it as the years progress. By going this route, a homeowner will have the opportunity to eliminate interest placed on the loan through your taxes at the conclusion of the year. In addition, the homeowner will pay far less in interest as a result of making larger sums of monthly payments in a shorter period of time.
Another upside is being able to pay off your loan at a quicker rate vs virtually all other mortgage payment plans offered, which can prevent plenty of nuisances in the long term.
For example, many mortgage payment plans typically permit payments to be made up up to 30 years. With a growing equity mortgage, the payments revolved around this mortgage plan can be covered in half the cycle or less.
This mortgage plan does however, have its flaws. One major downside of a growing equity program is over the fact the homeowner will have to continue raising their mortgage payments gradually throughout the years moving forward. This means the monthly payments will be made in fully amortizing installment from the very start, and will continue to rise from then on. Due to this program being somewhat of a risk, homeowners in search of suitable mortgage payment plans should calculate and go over as to whether or not their budget and income will be able to cover these potential monthly payments over the course of several years without any setbacks.
Growing equity mortgage vs Graduated payment mortgage
A growing equity mortgage has both similarities and key significant differences with a graduated payment mortgage. Both mortgage plans have fixed interest rates as well as monthly payments that will increase overtime.