Which loan type is used in commercial lending to enable a new business to defer a portion of mortgage payments in the expectation of increased income in the future?

• A. Buy downs
• B. Graduate payment mortgage
• C. Open end loan
• D. Reverse mortgage

Answer: (B)

A graduated payment mortgage is designed so payments start lower and rise over time in a predefined schedule. In commercial lending, this structure helps a new business conserve cash in the early, less profitable period and then handle higher debt service once income grows. The initial lower payments defer part of the mortgage burden with the expectation that future earnings will support the larger payments later, making the loan more affordable during the startup phase.

This contrasts with buy-downs, which lower the interest rate upfront but don’t change the payment schedule; open-end loans, which are lines of credit that can be drawn as needed; and reverse mortgages, which allow seniors to borrow against home equity with no required payments while they live in the home.