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2/28 Mortgage

Mortgage Library: Ask a Mortgage Related Question: Answers: 2/28 Mortgage


I am planning on buying a house and I have not so good credit. I was offered a 2 28 ARM and I'd like some information on this type of loan.

S. B.


Hello S.,

The 2/28 loan is a program mainly offered to people with not so good credit. Often times it is called a band aid loan. This loan is based off of the LIBOR Index which means London Interbank Offerred Rate. The way the 2/28 loan is structured is your first two years will be fixed at an initial interest rate. Then the remaining twenty eight years the loan will be adjustable. Your loan will usually adjust every six months and will increase dramatically over the next few years. If you decide to take this loan, you will want to refinance as soon as your fixed period of two years are over. Basically this loan offers a low, two year teaser rate, that is perfect for building your credit. If you make all of your payments on time for the next two years your credit should rise dramatically. This will ensure a much lower rate when it is time to refinance. At the end of two years when your credit has gone through a re-building stage, you will hopefully be able to qualify for a regular conventional loan.


S. M.

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