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Graduated Payment Loan Calculator

Enter your loan details and graduation schedule to estimate the graduated payment stream.

How it is calculated

First the tool finds the standard level payment: M = P × i ÷ (1 − (1 + i)−n), with P the loan amount, i the annual rate ÷ 100 ÷ 12 and n the term in months (a 0% rate uses P ÷ n). It then fixes the starting payment at 75% of that, a built-in assumption rather than a calculation from a real schedule: initial = 0.75 × M. The year-2 payment is initial × (1 + g) and the final payment is initial × (1 + g)k, where g is the graduation rate ÷ 100 and k the number of graduation years. Graduation years must be a whole number of at least 1 and no longer than the loan term, and rate, graduation rate and term are capped at 100; anything else shows no result. It does not track the balance or negative amortization, so treat it as a rough estimate.

Worked example

Borrow $200,000 at 6% for 30 years, with payments rising 7.5% a year for 5 graduation years. Monthly rate is 0.005 and n is 360, so the standard payment is about $1,199.10. Starting payment: 0.75 × 1,199.10 = $899.33. Year 2: 899.33 × 1.075 = $966.78. Final: 899.33 × 1.0755 = $1,291.10, which is now above the standard $1,199.10. The tool does not show the loan balance, which can be higher after the early low payments.

Try this example →

Common mistakes

  • Treating the start payment as an exact quote. It is simply 75% of the standard payment; a real plan sets its own starting percentage and schedule, so ask the lender for the actual figures.
  • Entering the graduation rate as a monthly or total rise. It is a yearly rate: 7.5 means each step is 7.5% above the last one.
  • Assuming the final payment pays the loan off on schedule. The tool does not compute the balance, so it does not check that the stepped payments actually repay the principal in the term.
  • Entering more graduation years than the loan has, such as 60 on a 30-year loan. The tool shows no result because the graduation period must fit inside the term.
  • Setting graduation years to 0 to see a level payment. The tool needs at least one graduation year and shows no result for 0; use a standard loan calculator for a flat payment.

About this calculator

A graduated payment mortgage (GPM), historically formalized in the U.S. as FHA Section 245 loans, is designed for borrowers who expect their income to rise over time: instead of a level payment from day one, the monthly payment starts noticeably lower than a standard fully amortizing payment and then steps up each year during a graduation period, typically 5 to 10 years, before leveling off for the rest of the term.

This calculator approximates that initial payment at roughly 75% of the standard amortizing payment for the loan amount, rate, and term, then grows it by your chosen graduation rate each graduation year. Because early payments can be lower than the interest actually accruing, GPMs commonly involve negative amortization in the first years — the loan balance temporarily grows before the higher later payments pay it back down.

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