2/28 Loan Information
From LoveToKnow Mortgage
If you have less than perfect credit and are looking for a mortgage, 2/28 loan information may be exactly what you’re looking for.
2/28 ARM
The 2/28 ARM loan is known as a “hybrid” mortgage. The numbers represented in the name explain the 2/28 loan terms. The "2" stands for the first two years of the mortgage loan which have a fixed rate. The "28" represents the next 28 years of the loan which have an adjustable rate and are subject to interest rate adjustments approximately every six months.
Most often, people obtaining a 2/28 loan consider it a temporary situation and intend to refinance within those first two years because of the potential of high interest adjustments making their payments skyrocket. 2/28 ARMs have a ceiling rate like any adjustable rate mortgage, but this rate can be upwards of 13 percent. For those considering 2/28 loan information, this means payments have the potential to rise to this ceiling rate over time.
No Credit or Bad Credit
As you look over your 2/28 loan information, be sure to check pre-payment penalties that would apply if you decide to refinance after the first two years. 2/28 ARMs are considered temporary loans that are often used to help people who have never owned a home and individuals with bad credit. A 2/28 loan allows these people to buy a home they could not otherwise purchase.
2/28 ARMs are often offered by sub-prime lenders to help borrowers get the house they want at a lower initial rate. The terms are attractive for the first two years and allows the borrower to enjoy affordable payments when they might not otherwise have been able to get a loan. Borrowers who need to establish or repair their credit choose a 2/28 ARM while hoping to secure a fixed rate mortgage before the rate is adjusted upward.
If you have a 2/28 loan with a 3-year pre-payment penalty, it means the borrower will be responsible for the prepayment penalty if they choose to refinance after the original 2-year fixed interest term concludes. In some cases, lenders offer the broker a rebate when the prepay term is longer than two years.
2/28 Loan Information Available
A 2/28 loan usually adjusts every six months. If you have bad credit or no credit and decide to go with this type of loan it is wise to refinance as soon as your fixed period is over. If payments are made on time for the first two years, your credit will improve and therefore increase your chances at obtaining a substantially lower rate when you refinance.
What makes a 2/28 loan attractive? Initially, these mortgage loans offer payments that are lower than traditional 30-year fixed rate mortgages. However, be sure you understand the 2/28 loan information regarding cap limits and margin so you can be prepared for your first rate adjustment. The fully adjusted rate takes the current index plus the margin (a fixed number added to the index) to compute the rate on an adjustable rate mortgage.
The advantage of the 2/28 ARM is that it permits borrowers to develop a record of positive mortgage payments. This boosts their credit rating, which will help when they decide to refinance to a lower fixed-rate mortgage.
If you currently find yourself within the first two years of a 2/28 loan, use the time wisely and think ahead. Take the steps to qualify for the lowest interest rate available to you. Not everyone can qualify for a prime-rate mortgage, but do your homework. Work to find a fixed rate mortgage to avoid the sometimes-horrendous adjustable rates which apply to the next 28 years of a 2/28 loan.
Calculate Monthly Payments
Be sure you understand your 2/28 loan information. What will your payments be when loan adjustments are made? 2/28 adjustable rates let you enjoy those lower payments for the first two years, but what happens when the rate adjusts upwards? Online adjustable rate mortgage calculators can help you understand the worst case situation.
If you decide to go with the 2/28 loan, remember that it is designed for the borrower to save in the first two years of the loan. Keep this in mind and use that time to not only save in the present but to research your refinancing options so that when the time comes you'll save in the long term with the best rate you can find on a conventional mortgage loan.
Learn More
This page has been accessed 1,524 times. This page was last modified 01:03, 29 April 2007.
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