If you are buying a home, you have several options when it comes to financing that purchase. One of the options you will have is called a two-step mortgage. In this type of financing, you are given a fixed-interest rate for a specified period of time. This period of time is usually 5 to 7 years. A homebuyer should be made aware of this time period when the mortgage is taken out, and they should be given an exact adjustment date.
Once the time has elapsed, the interest rate will be adjusted to match current market rates. The homebuyer may be given the choice between choosing a fixed-rate for the rest of the mortgage or a variable rate. Whether or not the homebuyer will be given this choice should be discussed when the mortgage is assumed initially.
When a homebuyer chooses a two-step mortgage, they are taking a risk. The interest rate when the mortgage is adjusted could be higher than the one they took on, and it could make the mortgage payments quite unaffordable. In many instances, a homebuyer will take on a two-step mortgage with plans of moving out of the home before the rate is adjusted or refinancing the first mortgage prior to the adjustment date.
Any person who is considering taking on a two-step mortgage should understand and consider the risks. A person experienced in mortgages, including a real estate agent, can help a homebuyer understand their options and determine which type of mortgage best meets their current and future needs.