2/28 Adjustable Rate Mortgage - Example
A 2/28 is often a subprime mortgage that may have higher rates and depending on where you live may have a prepayment penalty. The 2 refers to the number of years that the loan is fixed while the 28 refers to the number of years that the loan is adjustable after that. So a 2/28 mortgage is usually due in 30 years. Typically they may adjust every 6 months after the initial fixed period expires.
| Related Articles |
|---|
| » Refinancing to a Fixed Mortgage |
| » Getting the Best Mortgage Possible |
In this example, we look at 2/28 mortgage for $200,000 with a starting interest rate of 7.5%. It has a 3% cap on the first adjustment and a 1% cap on each additional adjustment. It has a minimum interest rate equal to the start rate and a lifetime maximum interest rate of 13.5%. The index and margin are 5.34% and 3% respectively. Note that the fully indexed rate (i.e. index plus margin) is more than the start rate so even if the index rate remains stable the interest rate will increase after two years. When you press the Calculate button you will see that if the index rate remains stable over the life of the loan you would end up paying $341,189 in total interest.
Click on the Calculate button below to generate the amortization schedule for this example or enter your own information or explore the other examples.
The Basics: The Floor Rate Matters Margin Makes a Difference Payment Shock
Interest Rate Caps are Important Comparing Future Interest Rate Scenarios
Common Loan Types: 1/1 ARM 3/1 ARM 5/1 ARM 7/1 ARM 10/1 ARM
Other Examples: 2/28 3/27 5/25
