Hawaii GPM Graduated Payment Mortgage

The Hawaii home loan GPM is another alternative to the conventional adjustable rate mortgage, and is making a comeback as borrowers and mortgage companies seek alternatives to assist in qualify for home financing here in Hawaii. Unlike the Hawaii home loan ARM, GPMs have a fixed note rate and payment schedule. With a Hawaii GPM the payments are usually fixed for one year at a time. Each year for five years the payments graduate at 5.5% - 8.5% of the previous years payment. This is an attractive option for people wanting to buy a home here in Hawaii, especially for areas like Oahu abd Maui where is home loans are 20% higher than on other islands.

Hawaii GPMs are available in 30 year and 15 year amortization, and for both conforming and jumbo loans. With the graduated payments and a fixed note rate, Hawaii Loan GPMs have scheduled negative amortization of approximately 10% - 12% of the loan amount depending on the note rate. The higher the note rate the larger degree of negative amortization. This compares to the possible negative amortization of a monthly adjusting Hawaii home loan ARM of 10% of the loan amount. Both loans give the Hawaii loans the ability to pay the additional principal and avoid the negative amortization. In contrast, the Hawaii GPM has a fixed payment schedule so the additional principal payments reduce the term of the loan. The ARMs additional payments avoid the negative amortization and the payments decrease while the term of the loan remains constant.

The scheduled negative amortization on a GPM differs depending on the amortization schedule, the note rate and the payment increases of the loan. GPM loans with 7.5% annual payment increases offer the lowest qualifying rate but the largest amount of negative amortization.

The note rate of a Hawaii GPM is traditionally .5% to .75% higher than the note rate of a straight fixed rate mortgage. The higher note rate and scheduled negative amortization of the Hawaii home loan GPM makes the cost of the mortgage more expensive to the borrower in the long run. In addition, the borrowers monthly payment can increase by as much as 50% by the final payment adjustment.

The lower qualifying rate of the GPM can help borrowers maximize their purchasing power, and can be useful in a market with rapid appreciation. In markets where appreciation is moderate, and a borrower needs to move during the scheduled negative amortization period they could create an unpleasant situation.