A growing equity loan or growing equity mortgage is a different type with a fixed interest rate. That is why the amount monthly paid increased over time according to the agreed-upon payment schedule. This means more money is applied to the principal of the loan. The borrower then tries to make the loan life shorter and thus accrues less interest on the loan. This loan also helps to increase the home equity, which is quicker than the traditional mortgage loan.
This growing equity mortgage is a program that can help homeowners to gather equity faster. With this loan program, buyers start the regular mortgage payment. And after a brief period, this monthly required payment will increase. So, the faster you accumulate the home loan, the quicker the mortgage can be paid off.
To discuss it briefly, a growing equity mortgage is a fixed-rate mortgage where the monthly payment increases with time as per the set schedule instead of remaining fixed and equal over the loan term. The interest rate on this kind of loan term does not generally change and not to mention never has any negative amortization. That makes the first payment as a fully amortizing payment. This payment amount increases with time, which makes the additional amount beyond the fully amortizing payment applied directly to the remaining mortgage principal by shortening the life of the loan and improving the overall interest savings.
In real estate, the growing equity mortgage effectively allows the borrower to speed up the procedure of the repayment of the fixed rate mortgage by scheduling the additional principal payment that increases over time. In addition to paying the loan term early, a growing equity mortgage helps the home equity to build up faster than the borrower could leverage if there is a need. So, payments for the growth equity mortgages typically rise annually by increasing 5% per year.
Therefore, a growing-equity mortgage must not be confused with another graduated payment mortgage. You must know that the graduated mortgage also has a fixed interest rate, and the payments are set at intervals. This graduated payment method also has negative amortization. Simply put, the initial payment of the graduated mortgage is set below the fully amortized payment, unlike a growing equity mortgage. Which is specified below in the interest-only payment. This creates the negative amortizing and not the interest savings.
