Buyers may be wary of taking on an adjustable rate mortgage instead of a fixed rate loan. Adjustable rates were one factor in the housing downturn, with the unpredictability of monthly payments catching unprepared buyers off guard and causing them to lose their homes. An adjustable rate mortgage may also not seem like a wise idea at a time when mortgage rates are creeping higher.

There are several types of adjustable rate mortgages, in which the interest rate is fixed for a period of time but is later bumped up or down based on changes in the market. John Allasio, writing for the retail mortgage lender Quicken Loans, says this type of loan can offer a lower initial interest rate, which is especially beneficial for buyers who don't plan to stay in the property for the entire duration of the loan.

Some adjustable rate mortgages can have their interest rates changed as frequently as every month. Others allow buyers to convert to a fixed rate mortgage when they find a rate they like.

A two-step mortgage acts as something of a compromise between a fixed rate mortgage and an adjustable rate mortgage. Essentially, this type of loan guarantees one rate for a certain amount of time as the first step, then adjusts the rate at a single point in the future as the second step.

In a two-step mortgage, one interest rate is set for a predetermined amount of time. The financial site Investopedia says most two-step mortgages have a fixed rate period of five or seven years. Once this initial period expires, the rate is adjusted based on market conditions.

One benefit of a two-step mortgage is that it typically has a lower rate than you would be able to realize with a fixed rate mortgage. They are also less unpredictable than a standard adjustable rate mortgage, since the rate—and your monthly payments—will only be changed once. If rates have fallen by the time the initial period expires, you might even see your payments decrease.

It can be tough to predict the future, of course, and rates may have risen considerably by the time the initial period is up. This can result in a large increase in your monthly payments.

You'll also want to make sure you understand all the terms of the loan, since some two-step mortgages are balloon mortgages. In this arrangement, the lender can demand full repayment of any remaining balance within 30 days of the date when the rate is set to be adjusted.

A two-step mortgage often lets you take a few different options when the rate is set to be adjusted. Marcia Goodman, a real estate agent in Gainesville, Va., says buyers can choose to go with a fixed rate or continue with a variable rate.

Consider your plans and your financial means before deciding whether a two-step mortgage is right for you. Investopedia says a two-step mortgage can be beneficial if you expect to move out of the property or refinance the mortgage before the initial period is up. You'll also want to analyze how your mortgage payment might change with a higher rate and whether you'll have the ability to meet this obligation if rates increase.