Alabama Real Estate Practice Exam

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Which type of mortgage is characterized by payments that increase each year?

  1. Subprime mortgage

  2. Growing equity mortgage (GEM)

  3. Wraparound mortgage

  4. Blanket mortgage

The correct answer is: Growing equity mortgage (GEM)

A subprime mortgage is a type of mortgage that is offered to borrowers with lower credit scores and often comes with a higher interest rate. This type of mortgage does not have increasing payments each year. A wraparound mortgage is a type of second mortgage that is added on top of an existing mortgage and combines the balance of both loans into one new loan. This type of mortgage does not have increasing payments each year. A blanket mortgage is a type of mortgage that covers multiple properties under a single loan. Again, this type of mortgage does not have increasing payments each year. Therefore, the only remaining option, a growing equity mortgage (GEM), is the correct answer. This type of mortgage starts with lower payments and gradually increases each year, with the difference going towards building equity in the property. This type of mortgage is often taken out by those who are expecting their income to increase in the

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