A fixed rate mortgage that entails low payment (of interest and repayment of principal) in the early years, and thereafter increases payment until its maturity. An example is a 20-year mortgage in which payment increases by a constant amount each year over the course of an initial period of five years. Later on, the rate gets flat until maturity.

The rates charged on graduated payment mortgages are a bit higher than rates on conventional mortgages because of payment deferment in the early period. This is meant to provide for the financing needs of those who cannot afford to pay high in their initial years of income-earning (such as young people who got employed and expect their salaries to increases over time).

This mortgage comes in another type: the adjustable rate graduated payment mortgage, in which the interest rate resets every three to five years.

It is also known, in the trade jargon, as Jeep mortgage.