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2/28 Mortgages Explained
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By Ben Afzal

Benefit

A 2/28 mortgage is a loan that is fixed for 2 years and adjustable for the final 28 years. This is a loan with a 30 year term.

This type of loan is generally cheaper than loans that are fixed for a longer term, such as a 30 year fixed loan.

2/28 mortgages have been used extensively in recent years during the real estate boom. It was often used with 100% financing.

The prepayment penalty for many of these loans is typically for 2 years as well. This allows a borrower to refinance after the end of 2 years so they don’t have to pay a prepayment penalty. A prepayment penalty can often be 6 months of interest or something similar.

DIfferent Loan Options To Refinance

A borrower who gets this loan will typically want to switch out of it when the interest rate adjustments. This happens at the end of the first 2 years. At that time, the interest rate will adjust per the terms of the loan. It can typically go up substantially. A monthly payment can increase by 50% or more.

Many borrowers will have different loan options, including:

  • 30 year fixed
  • 40 year loan
  • 50 year loan
  • 10 year interest only
  • minimum payment option loan
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How It Works

A borrower can use their additional buildup of equity to leverage into a lower mortgage rate.

The process is similar to the last time the mortgage was done. Make sure that you use any additional equity built up into your property. Generally the more equity you have in your property the lower your interest rate should be.

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For additional Mortgage Refinancing information
and resources visit Mortgage Refinancing.
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This entry was posted on Wednesday, September 27th, 2006 at 2:20 am and is filed under Refinance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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