Growing Equity Mortgage
A type of mortgage where monthly payments increase over time according to a predetermined schedule, with the extra amount applied directly to the principal balance. This loan structure allows borrowers to pay off their mortgage faster than a traditional fixed-rate loan while building equity more rapidly.
Example
“Sarah chose a growing equity mortgage because she wanted to build equity faster and could afford the gradually increasing monthly payments over the 15-year term.”
Memory Tip
Think 'growing payments = growing equity' - as your payments grow bigger each year, your equity grows faster too.
Why It Matters
Borrowers can save significant money on interest payments and build equity faster, but must be confident their income will grow to accommodate the increasing payment schedule.
Common Misconception
Many people think the payment increases are tied to interest rate changes, but they're actually predetermined increases that go toward principal reduction.
In Practice
A borrower might start with a $1,500 monthly payment that increases by $50 every year, allowing them to pay off a 30-year mortgage in 15-20 years while saving tens of thousands in interest.
Etymology
The term combines 'growing' from Old English 'growan' meaning to increase, with 'equity' from Latin 'aequitas' meaning fairness or equal value, describing how the homeowner's ownership stake grows faster through increasing payments.
Common Misspellings
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