What is a 2/28 ARM?
With 2/28 ARMs, your interest rate is fixed for the first two years after the note date (the number before the slash refers to the number of years that the initial rate is fixed), after which the interest rate can change every year to the index value plus the margin (subject to the interest rate caps). These programs (often called “B paper loans”) are primarily offered for borrowers with less-than-perfect credit who don’t qualify for an “A paper loan”. They allow you two years to rebuild your credit, at which point you may refinance at a better rate. 2/28 ARM loans offer an initial higher interest rate than the fully indexed rate (index plus margin) during the initial period of the loan and usually have a two year prepayment penalty.
