The 2-2-8 Adjustable-Rate Mortgage (2/28 ARM)

A Comprehensive Overview
The 2-2-8 Adjustable-Rate Mortgage (2/28 ARM)
The 2-2-8 Adjustable-Rate Mortgage (2/28 ARM)A Comprehensive Overview

Starting the journey of homeownership involves considering different mortgage choices. One option is the 2-2-8 Adjustable-Rate Mortgage (2/28 ARM), which differs from the usual 30-year fixed mortgage. With this mortgage, you get a fixed interest rate for the first two years, followed by a rate that can change for the next 28 years.

Let's delve into how it operates, its advantages, its drawbacks, and whether it suits your needs.

What is a 2/28 Adjustable-Rate Mortgage (2/28 ARM)?

A 2/28 ARM is a type of 30-year home loan. It starts with a fixed interest rate for two years. After that, the rate can change every six months based on a specific rate plus an extra amount.

The initial fixed rate is usually lower than regular mortgages, which can make it appealing. But be careful: there may be big fees if you pay off the loan early during the initial fixed period to make up for the lower rate.

How Does a 2/28 ARM Work?

The 2/28 ARM gained popularity during the real estate boom of the early 2000s as an alternative to traditional mortgages when prices were soaring.

Unlike other ARMs that feature longer fixed periods at the start, such as 5/1 or 15/15 ARMs, the 2/28 ARM remains unchanged for the first two years. After this period, the interest rate can shift every six months, influenced by the market's performance.

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Example of a 2/28 ARM

Let's say you buy a $350,000 house with a $300,000 2/28 ARM loan. At first, your interest rate is 5%. Your monthly payments would be $1,906 during the fixed period of two years.

But after two years, if the interest rate goes up to 5.3%, your monthly payments will also go up. Unlike fixed-rate loans, where payments stay the same, with ARMs, payments can change, which makes planning for the future harder.

Risks of 2/28 ARMs

The main risk of a 2/28 ARM is the chance that interest rates might go up after the initial fixed period. Even though you might start with lower payments, if rates increase later on, your payments could jump a lot, especially if the market is unstable.

The 2008 market crash showed these risks, as lots of people with 2/28 ARMs struggled to refinance or sell their homes when values dropped.

Comparison with Fixed-Rate Mortgages

Fixed-rate mortgages keep the interest rate the same for the entire loan, but ARMs, like the 2/28 ARM, start with a fixed period, and then the rate can change. ARMs might have lower initial payments, but unlike fixed-rate loans, they're less predictable because your payments could change later on.

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Is a 2/28 ARM Right for You?

Deciding if a 2/28 ARM fits your financial goals requires careful thought. While it might mean lower initial payments, you must consider whether you can handle higher payments later on.

If you expect your income to go up or you'll sell the house before payments change, a 2/28 ARM could work. But if you prefer stable and predictable payments, a fixed-rate mortgage might be better.

Considerations for Early Repayment

Whether you can pay off a 2/28 ARM early depends on the loan's terms. Some mortgages impose prepayment penalties if the loan is paid off before the specified period, including through home sale or refinancing.

Reviewing the terms of your mortgage agreement to understand any potential penalties associated with early repayment is crucial.


In conclusion, the 2/28 Adjustable-Rate Mortgage has a special setup: a fixed period at the beginning followed by adjustable rates. It might interest people looking for lower initial payments. However, it's important to think about the risks involved with rate changes.

You should carefully think about your financial situation and what you want in the long run to decide if a 2/28 ARM is the best fit for your journey as a homeowner.

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