2/28 Adjustable-Rate Mortgage – 2/28 ARM definition explanation

What is 2/28 Adjustable-Rate Mortgage – 2/28 ARM?
A type of adjustable-rate mortgage that has a two-year fixed interest rate period after which the interest rate on the mortgage begins to float based on an index plus a margin. The index plus the margin in known as the fully indexed interest rate. Often, a 2/28 ARM is designed as a short-term financing vehicle that provides borrowers with time to repair their credit before they refinance into a mortgage with more favorable terms. Read more for examples and further explanation including related video clips and also comments

Example explains 2/28 Adjustable-Rate Mortgage – 2/28 ARM
In many cases, 2/28-mortgage borrowers fail to recognize the risks associated with such a mortgage. They often don’t recognize how much their monthly payments will increase when the interest rate starts to adjust at a higher rate. It is important to note that there is usually a high probability that the fully indexed interest rate will be substantially higher than the initial two-year fixed interest rate. Once this number adjusts, the borrower’s payments are likely to increase as well.

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