When should I consider a 2/28 adjustable rate mortgage (2/28 ARM)?
Answer:A 2/28 adjustable rate mortgage (2/28 ARM) is often called the band aid loan and is generally offered to people with lower credit. However, as a common reason to apply for an ARM, staying in the same place for thirty years may not be what you want for yourself and despite current low earnings, you may be expecting your income potential to expand in a couple of years.
So, if you are planning to occupy your home for only a couple of years, or you want to make lower monthly payments and expect to be able to handle growing expenses in the future, a 2/28 ARM may be the right choice for you.
For the two-year fixed period, you will get a lower fixed rate for your 2/28 ARM which will begin to adjust when this period expires. The interest rates will then be tied to the LIBOR index which stands for London Interbank Offered Rate and for the remaining 28 years your loan will adjust probably twice a year and the interest rate may rise considerably.
You may choose to refinance your 2/28 ARM, when the two-year period is over. If you have been making regular monthly payments, your credit score will hopefully be high enough for you to qualify for a conventional home loan.
Our advice: Be sure to ask your lender about FHA loans. FHA loans have very competitive interest rates because the loans are insured by the US Federal Government. Even if you have had serious credit problems, such as bankruptcy, it is easier to qualify for an FHA loan than a conventional loan. Also, taking an FIXED rate loan while the interest rates are still low is a smart idea. Check your eligibility here:
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