What Is A Two-Step Mortgage?
Joseph Kenny
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 rate mortgage, at least at this
time, the adjustable rates will now kick in. Generally, and this
is something you want to make sure is in the terms, there is a
limit placed on how much of a percentage the interest can be
raised - if the market calls for a raise. After this initial
raise, the interest rate is adjusted yearly - according to the
market.
This type of mortgage is good for someone who may be thinking
of moving prior to the time that the mortgage rates are
changed. If they are not certain that they will stay at that
location then this would be a good way to go. Another
possibility is that a two-step mortgage would allow someone
with a lower income to get a larger house. This could work
quite well especially if they are quite sure that their income
will be improved over the next few years.
The main advantage of this type of mortgage, as with any
adjustable rate mortgage, is the possibility of a large amount
of savings if the market stays relatively good. Of course, this
is really unpredictable, but it could serve as a good way to go.
On the other hand, you may be forced to sell if the market does
turn bad.
When you look for a mortgage, whether it be a two-step mortgage
or any other kind, be sure to compare it with several offers.
This way, you can see what others are offering and have
something to compare your offer with. Be sure to separate the
interest and principal from the various fees that will be
applied. You want to compare the fees with the fees on other
offers especially, because this is where any extras that there
are will be added. It is a good idea to know the terms that
apply to the various fees - some are really unnecessary, but
you need to be able to tell the difference.
About The Author: Joe Kenny writes for the UK personal finance
sites http://www.ukpersonalloanstore.co.uk and also
http://www.cardguide.co.uk
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