Legal Definitions - flip mortgage

A flip mortgage is a type of graduated-payment mortgage that allows the borrower to place some or all of the down payment in a savings account. The principal and interest from this account can be used to supplement lower mortgage payments in the early years of the loan. This type of mortgage is useful for borrowers who expect their income to increase over time.

For example, let's say a borrower takes out a flip mortgage for $200,000 with a down payment of $20,000. The borrower places $10,000 of the down payment in a savings account. In the first year, the borrower's mortgage payment is $1,000 per month, but the borrower only pays $800 per month out of pocket. The remaining $200 comes from the savings account. As the borrower's income increases, they can start making larger payments and eventually pay off the mortgage.