Growing Equity Mortgage (GEM)

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What is a Growing Equity Mortgage (GEM)?

A Growing Equity Mortgage (GEM) is a type of fixed-rate mortgage where the monthly payments increase over time according to a predetermined schedule. Unlike a traditional fixed-rate mortgage, where the monthly payments stay constant, a GEM allows for an increase in the monthly payments. The extra payment is directly applied to the loan’s principal amount, thereby reducing the term of the loan and the total interest paid over the life of the mortgage.

How Does a GEM Work?

A GEM starts with a lower initial monthly payment compared to a traditional fixed-rate mortgage. As time progresses, the monthly payments increase, usually annually or semi-annually, based on a predetermined percentage. For example, if you have a GEM with a 5% annual increase, and your initial monthly payment is $1,000, your payment for the second year would be $1,050, and so on. The higher payments are used to reduce the principal balance, which in turn reduces the overall interest that you pay over the term of the mortgage. In essence, you end up paying off the mortgage faster than you would with a conventional mortgage.

Pros of a GEM

  1. Lower Initial Payments: Suitable for individuals expecting an increase in their future earnings.
  2. Faster Loan Repayment: You pay off your mortgage quicker than traditional loans.
  3. Interest Savings: By reducing the principal quicker, you save on the total interest over the loan term.
  4. Fixed Interest Rate: Just like traditional fixed-rate mortgages, the interest rate doesn’t change over the loan term.

Cons of a GEM

  1. Increasing Payments: Not suitable for people with fixed or decreasing incomes.
  2. Limited Availability: Not all lenders offer GEMs.
  3. Higher Risk: Missing an increased payment can result in penalties or foreclosure.

Who Should Consider a GEM?

GEMs are ideal for borrowers who expect a steady increase in their income over time and are looking to save on long-term interest payments. This could include professionals at the beginning of their career or individuals in industries with regular salary increments.

How to Qualify for a GEM

To qualify for a GEM, you typically need a good credit score, stable employment, and the ability to meet the increasing payment schedule. Lenders may also require a lower loan-to-value ratio compared to traditional mortgages due to the higher risk associated with increasing payments. A Growing Equity Mortgage can be a cost-effective way to finance your home if you expect your income to increase in the future. However, it’s crucial to assess the pros and cons to determine if it’s the right choice for your financial situation. Always consult a financial advisor and multiple mortgage lenders to explore your options.


A GEM is a mortgage in which the borrower’s monthly payments increase at a predetermined rate, and the additional money is used to pay down the principal, resulting in a quicker payoff of the loan.

In a standard fixed-rate mortgage, the monthly payments remain the same throughout the life of the loan. In a GEM, the payments increase over time, allowing the borrower to pay off the loan more quickly and save on interest.

The main benefits include faster loan payoff, savings on interest payments, and building equity in the home more quickly.

The increasing payments can be a downside if the borrower’s income does not also increase over time, potentially making the payments harder to afford.

The increase is typically set at a fixed percentage or amount each year, as agreed upon in the mortgage contract.

This depends on the terms of your mortgage agreement. Some GEMs allow for early payoff without penalties, while others might have prepayment penalties.

A GEM might be a good option for borrowers who expect their income to increase over time and want to pay off their mortgage more quickly. However, it may not be suitable for those on a fixed income.

Just like with other mortgages, the interest paid on a GEM is typically tax-deductible. However, because you pay off the loan more quickly, the total amount of interest paid (and thus the total potential tax deduction) may be less.

Yes, it is usually possible to refinance a GEM, just like with other types of mortgages. However, it’s important to weigh the costs of refinancing against the benefits.

Qualifying for a GEM typically involves the same process as qualifying for other types of mortgages, including a credit check, income verification, and an appraisal of the property.

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