Is a GEM Mortgage Right for You?

Bruno Simpson Last Updated May 12, 2019 (0) comment

gem mortgage

Looking to pay off your mortgage as soon as possible? If so, you may want to consider getting a GEM mortgage.

The process of applying for a GEM mortgage is the same as applying for a standard home loan. The credit requirements are identical, and the down payment can be as low as 3.5 percent. The mortgage limits vary by geographical location.

Now, is GEM (or growing equity mortgage) a good option for you? To answer that, let’s go over what this type of mortgage entails. Here are the main things to know about growing equity mortgages.

What is GEM Mortgage?

First things first: what is a growing equity mortgage?

This is a fixed rate mortgage in which the monthly payments increase according to a set schedule. The interest rates never change, and there’s no negative amortization involved. The payments typically increase up to 5 percent per year.

In other words, a GEM mortgage helps homeowners accumulate equity faster than normal. If you have a limited income but expect your earnings to increase, you can apply for a growing equity mortgage.


The biggest advantage of a growing equity loan is that it allows you to save a lot of money on interest.

How does this work? If your mortgage payments are increasing, you apply more of your payment to the principal. The quicker you pay down the principal, the less interest your loan will accumulate.

As mentioned above, you also get to pay off your mortgage faster. In most cases, this means cutting several years off of your mortgage. Needless to say, not having to worry about your biggest bill every month is a big relief.

Accumulating equity faster is another major benefit. Remember, you may need to borrow against your equity in the future. Doing that lets you deduct the interest from the loan on your end-of-year taxes.


There’s only one major disadvantage of a growing equity mortgage.

Namely, your mortgage payment will keep increasing. Unlike a graduated payment mortgage, you start with a full monthly payment right away. Over the years, you only add up to that amount.

How to make sure you can deal with increasing mortgage payments? Well, it helps if you know your income will increase at the same rate. This may require you to get raises at your current job or find a better-paying job in due time.

Of course, keeping up with this type of mortgage can be a major issue. Many homeowners struggle with getting increases in pay fast enough, which can put them in an unfavorable position.

Getting a GEM Mortgage

Is a GEM mortgage the right choice for you? At the risk of sounding cliche, that depends on your particular situation.

Though this type of mortgage provides many advantages, they may not outweigh the risk. Not sure you’ll be able to keep up with monthly payment increases? Consider going with a conventional mortgage instead.

Want to know more about the different types of home loans? Take a look at our comprehensive list right here!

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