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Advantages and Disadvantages of a Growing Equity Mortgage (GEM)


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TERMINOLOGY

The Growing Equity Mortgage (GEM) is a program that is designed to help homeowners accumulate equity in their homes faster. With this loan program, you will start out with a regular mortgage payment. After a certain amount of time, your required payment is going to increase. By doing this, you will accumulate equity in your home faster than normal. Here are a few of the advantages and disadvantages of a Growing Equity Mortgage.

Advantages

One of the major advantages of this program is that you are going to save quite a bit of money on interest. With this program, your mortgage payments will increase periodically. This means that you will apply more of your payment to the principal. When you pay down the principal quicker, you will have less interest accumulate on your loan. Because of this, you are going to be able to save a substantial amount of money over the course of your loan. When you think about how much money people pay in interest on a traditional loan, this can make the Growing Equity Mortgage very attractive to borrowers.

Another big advantage of this type of loan is that you are going to be able to pay it off faster than normal. When you can cut several years off of your mortgage, this is going to be a big benefit for you. Imagine what it would be like to completely pay off your mortgage and not have to worry about your biggest bill every month. With the Growing Equity Mortgage, you are going to be able to take advantage of this situation.

Another advantage of this loan is that you are going to be able to accumulate equity in your home faster. Having equity in your home can be very beneficial in case you need to borrow against it in the future. By utilizing a home-equity loan or refinancing, you could tap into your equity for a number of different uses. Borrowing against your equity can make a lot of sense because you get to deduct the interest from your loan on your taxes at the end of the year.

Cons

The biggest disadvantage of this program is that you are going to have to keep increasing your mortgage payment over the years. You are going to start out with a full mortgage payment from the beginning. Therefore, this is not like a graduated payment mortgage where you actually start out with a low monthly payment and work your way up. You are starting with a full payment from the beginning and just adding to that amount. Because of this, you can find yourself with a substantial mortgage payment by the end of the loan.

Because of these increasing mortgage payments, you are going to have to hope that your income increases at the same rate. In order to do this, you are going to have to hope that you can get raises at your current job or that you can find better paying jobs as you go through your career. Many people have trouble with this scenario because they cannot get increases in pay fast enough to keep up with the mortgage.