A graduated payment mortgage is a type of loan where payments start at a lower amount and gradually increase each year over a set period, typically 5 to 10 years, before stabilizing at a fixed rate for the remainder of the loan term.

This structure can be beneficial when interest rates are high, as it allows borrowers to qualify more easily due to the lower initial payments. However, the trade-off for these lower starting payments is an increase in the total interest owed. Additionally, the difference between the lower initial payments and the actual interest due is added to the loan balance, a scenario known as "negative amortization." Negative amortization occurs when the payments made are insufficient to cover the accrued interest, causing the loan balance to grow over time.