Growing-Equity Mortgage

A growing-equity mortgage (GEM) is a type of mortgage that allows the borrower to make additional payments on top of the required monthly payment. These additional payments are then used to reduce the principal balance of the loan, which in turn increases the borrower's equity in the home. As the equity in the home increases, the borrower's monthly payments will also decrease.

There are two main types of GEMs:

• The first type is called a negative amortization mortgage. With this type of mortgage, the monthly payments are not enough to cover the interest on the loan. As a result, the principal balance of the loan actually increases over time. However, the borrower's equity in the home also increases, which can offset the negative amortization.
• The second type is called a positive amortization mortgage. With this type of mortgage, the monthly payments are enough to cover the interest on the loan and also reduce the principal balance. As a result, the principal balance of the loan decreases over time, and the borrower's equity in the home increases.

GEMs can be a good option for borrowers who want to build equity in their home quickly. However, it is important to note that these mortgages can also be more expensive than traditional mortgages, and borrowers should carefully consider their financial situation before taking one out.

Here are some of the pros and cons of GEMs:

Pros:

• They can help borrowers build equity in their home quickly.
• They can allow borrowers to make extra payments on their mortgage without having to refinance.
• They can be a good option for borrowers who want to pay off their mortgage early.

Cons:

• They can be more expensive than traditional mortgages.
• They can be more difficult to qualify for.
• They can be a good option for borrowers who are not sure how long they will stay in their home.