N.Y. Real Property Law § 279: Graduated payment mortgage

§ 279. Graduated payment mortgage. 1. A "graduated payment mortgage"

means a mortgage which provides: (i) monthly payments of principal and

interest which are lower during the initial years of the mortgage; and

(ii) that the graduation rate for the monthly payments, the term of

graduation and the interest rate are fixed throughout the term of the

loan; and (iii) monthly payments of principal and interest shall be

sufficient to pay all interest and to effect full repayment of principal

within the term of the mortgage as fixed at its origination.

2. Every graduated payment mortgage shall be subject to the following:

(a) the average annual rate of increase for principal and interest

payments shall not exceed:

(i) 7.5 percent per annum for a mortgage with a graduation period of

five years or less;

(ii) 6.5 percent per annum for a mortgage with a graduation period of

six years;

(iii) 5.5 percent per annum for a mortgage with a graduation period of

seven years;

(iv) 4.5 percent per annum for a mortgage with a graduation period of

eight years;

(v) 3.5 percent per annum for a mortgage with a graduation period of

nine years; and

(vi) 3 percent per annum for a mortgage with a graduation period of

ten years.

(b) periodic payments of principal and interest shall not change more

than once per annum and increases shall be limited to the first ten

years of the term of the mortgage.

(c) payments of principal and interest are required in amounts

sufficient to pay all interest and full repayment of principal within a

period not to exceed forty years.

3. Graduated payment mortgages may be offered only if the lender:

(a) offers the prospective borrower a non-graduated payment mortgage

loan at the prevailing rate being offered by that lender;

(b) provides the mortgagor with the option to convert the graduated

payment mortgage loan to a non-graduated payment mortgage loan at a

pre-determined time agreed upon between the borrower and lender and at

the same rate of interest provided for the graduated payment mortgage

loan; and

(c) discloses in advance on a uniform disclosure statement, prescribed

by the superintendent of financial services, the relevant provisions of

the graduated payment mortgage loan including:

(i) a side by side comparison of interest rates and other terms that

differ between a non-graduated payment mortgage loan and a graduated

payment mortgage loan;

(ii) payment schedules for both types of loans and the total payment

in dollars over the full term of each loan;

(iii) a statement prominently displayed that borrowers have the option

to elect a non-graduated payment mortgage loan; and

(iv) a description of the conversion option.

4. Failure of any lender to comply with any of the foregoing

provisions shall not render the mortgage void or unenforceable unless

otherwise provided by law.

5. The provisions of this section shall be applicable only to a

mortgage on real property improved by a one to six family residence

given by a natural person to secure a loan or to any agreement or note

made by a natural person in pursuance of any loan for the purpose of

financing the purchase of or refinancing an existing ownership interest

in certificates of stock or other evidence of an ownership interest in,

and a proprietary lease from, a corporation or partnership formed for

the purpose of the cooperative ownership of real estate, unsecured

except to the extent of an assignment or transfer of the stock

certificates or other evidence of ownership interest of the borrower and

the proprietary lease within ninety days from the making of the loan

which would otherwise conform to the provisions of this section but is

not otherwise entitled to be recorded as a mortgage.