2/28 Adjustable Rate Mortgage: What are the Risks?

A 2/28 adjustable-rate mortgage is a type of hybrid mortgage that is commonly offered in the mortgage industry today. Here are the basics of the 2/28 adjustable-rate mortgage and how it works.

2/28 Adjustable-Rate Mortgage

With this type of mortgage, you are going to get two years of a fixed interest rate. After that, for the next 28 years, you are going to get an interest rate that fluctuates every year. At the end of each year, your interest rate is going to be recalculated based on a financial index that your interest rate is tied to. A margin is going to be added onto that base interest rate in order to arrive at the rate that you are being charged.

Risks

The primary risk of this type of mortgage is that you are going to get a payment that you cannot afford. Many people that have this mortgage have ended up with payments that are more than twice what they were originally making. When this happens, you may find yourself in a situation that has you pondering foreclosure.

Another disadvantage of this type of mortgage is that you only get two years of a fixed interest rate. Other types of mortgages offer 5 to 10 years of a fixed rate before the interest rate starts to change.

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