Two-Step Mortgage

You're building your dream home: a giant plastic sphere buoyed in Nantucket Sound. You get a two-step mortgage to pay for it.

It consists of a 5-year introductory period, carrying a 5% fixed rate. Then, after five years, it switches to a 25-year adjustable-rate mortgage. The two steps consist of those two periods: the shorter, introductory part at the beginning, usually with a fixed rate, followed by a change to an adjustable-rate loan for the rest of its life.

These mortgages are often used for newly-built homes. The initial period essentially covers the construction process. Then it switches over to an adjustable-rate version. The mortgage holders can refinance at that point if they would rather lock in a longer-term, fixed-rate deal.