Certified Residential Appraiser Practice Exam

A debt secured by real property with payments that start low and gradually increase is known as what?

1. Fixed Rate Mortgage

2. Graduated Payment Mortgage

3. Variable Rate Mortgage

4. Reverse Mortgage

The correct answer is: Graduated Payment Mortgage

A debt secured by real property with payments that start low and gradually increase is characterized as a graduated payment mortgage. This type of mortgage is specifically designed to accommodate borrowers who anticipate a rise in their income over time, allowing them to start with lower initial payments that increase at predetermined intervals. The structure of a graduated payment mortgage is particularly beneficial for first-time homebuyers or those who may be in the early stages of their careers, as it eases the financial burden initially while providing a clear plan for higher payments as their financial situation improves. This approach helps to make homeownership more accessible, recognizing that many homeowners may not have the immediate income potential to afford larger payments from the outset. In contrast, fixed-rate mortgages require consistent payments throughout the loan term, while variable-rate mortgages entail fluctuating interest rates that can change over time, leading to variable payments. Reverse mortgages allow seniors to convert home equity into cash without monthly mortgage payments, and are not designed with increasing payment structures. Therefore, the graduated payment mortgage stands out as the option designed to start low and increase in a manageable way over time.