What is a Two-Step Mortgage?
A two-step mortgage is one that has one interest rate for the first part of the mortgage term and a second rate for the other part of the mortgage term. The length of the first interest rate is usually five to seven years. The second interest rate generally carries through the remainder of the length of the mortgage. Usually, the interest rate is below the market interest rate for the initial period and more than the market rate for the second period. A two-step mortgage may be an attractive option for some people for a number of reasons and under the right conditions. However, in many cases, borrowers prefer the stability of a fixed-rate mortgage, which will lock a borrower in at a guaranteed interest rate for the life of the loan. The conditions that make a two-step mortgage appealing are as follows: • When interest rates are high at the beginning of the loan but are expected to drop. • When there is a strong likelihood a borrower will not be in the home longer than five to seven yea
When it comes to the various options that you can get for buying your house, a two-step mortgage may be just the thing you need. Being that it is kind of a cross between both a fixed rate mortgage and an adjustable rate, it may provide just the option you want in a time of financial uncertainty. Here are some things you need to know about second step mortgages. A two-step mortgage, like its name implies has two different parts to it. Often called a hybrid loan, it combines some of the features of both types into a typical 30-year mortgage. The first part of the mortgage, which is usually either 5 or 7 years, has a fixed rate so that the interest and payment stay the same. This part of the loan is typically lower than the market value giving the buyer some savings during this time. At the end of the first period, an adjustment will take place, which will determine what the payments will be for the remainder of the 30 years. Since a two-step mortgage is typically more of an adjustable ra
the various options that you can get for buying your house, a two-step mortgage may be just the thing you need. Being that it is kind of a cross between both a fixed rate mortgage and an adjustable rate, it may provide just the option you want in a time of financial uncertainty. Here are some things you need to know about second step mortgages. A two-step mortgage, like its name implies has two different parts to it. Often called a hybrid loan, it combines some of the features of both types into a typical 30-year mortgage. The first part of the mortgage, which is usually either 5 or 7 years, has a fixed rate so that the interest and payment stay the same. This part of the loan is typically lower than the market value giving the buyer some savings during this time. At the end of the first period, an adjustment will take place, which will determine what the payments will be for the remainder of the 30 years. Since a two-step mortgage is typically more of an adjustable rate mortgage, at l
A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan due with 30 days notice at the end of seven or 10 years. When buying a home, some people consider using a two-step mortgage, which applies two different interest rates at two different times. Initially, this type of mortgage has the same interest rate for a period of time, most commonly five or seven years. When the initial time period is over, the interest rate is adjusted, usually upward, for the remainder of the term of the mortgage – hence the reference to two steps. Two-step mortgages typically have a cap on how much the interest rate can go up at the end of the initial period, but be forewarned that the jump might be more than 5 percent. When should you consider this type of mortgage to finance yo
Good news. A two-step loan helps a buyer really dance! Although the traditional 30-year mortgage is still the most widely-used home financing, a relatively new variation on the theme is gaining popularity: • The two-step mortgage amortizes the loan over 30 years, but generally starts out at a lower rate than a typical 30-year loan. • The rate is lower because after the initial period, the interest rate is adjusted to the prevailing rate for the balance of the loan. • The initial step is pre-set for a specific period, say 3 to 10 years, and the second step is the remaining time, generally 20 to 27 years. • The lower initial rate makes the two-step loan popular with first-time buyers because monthly payments are lower, but it also helps homeowners buy up to their next home. With our experience, we can give you tips that will help you through the mortgage maze phase of home buying. Call or e-mail us for information specific to your needs.
