Two Steps Mortgages

A two-step mortgage is a type of home loan that combines features of both fixed-rate and adjustable-rate mortgages. With this mortgage, the interest rate remains fixed for an initial period and then changes once to a new rate for the remaining loan term.

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For example, a borrower may have a fixed interest rate for the first 5 or 7 years of the loan. After this period ends, the interest rate adjusts one time based on current market conditions and then remains fixed for the rest of the loan term.

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Two-step mortgages can offer lower initial interest rates compared to traditional fixed-rate loans, which may reduce monthly payments during the early years. However, borrowers should be aware that the interest rate may increase after the adjustment period, potentially raising future mortgage payments.