Glossary term
2/28 ARM
A 2/28 ARM is an adjustable-rate mortgage with a fixed introductory rate for two years followed by adjustable payments for the remaining 28 years.
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What Is a 2/28 ARM?
A 2/28 ARM is an adjustable-rate mortgage with a fixed introductory rate for the first two years and an adjustable rate for the remaining 28 years of a 30-year loan term. After the initial period ends, the payment can change based on the loan's index, margin, rate caps, and reset schedule.
These loans became closely associated with payment shock during past mortgage cycles because borrowers could qualify at an introductory payment and later face a much higher payment.
Key Takeaways
- A 2/28 ARM has a two-year fixed-rate period followed by 28 years of adjustable-rate payments.
- The payment may rise after the introductory period ends.
- Rate caps, index, margin, and reset frequency determine how the rate can change.
- Borrowers should understand the fully indexed rate, not just the starter rate.
- A 2/28 ARM can be risky if the borrower cannot handle higher future payments.
How a 2/28 ARM Works
During the first two years, the borrower pays the introductory fixed rate. After that, the loan adjusts periodically. The new rate is usually based on an index plus a margin, subject to caps that limit how much the rate can change at one time or over the life of the loan.
If rates rise, or if the introductory rate was far below the fully indexed rate, the monthly payment can increase meaningfully.
What to Review Before Using One
Feature | Why it matters |
|---|---|
Introductory rate | Determines the starting payment |
Index and margin | Determine the adjusted rate after the fixed period |
Rate caps | Limit how much the rate can change |
Reset schedule | Shows how often the rate can adjust |
Prepayment terms | Can affect refinancing or payoff flexibility |
Why It Can Be Risky
A 2/28 ARM can look affordable at first and become difficult later. If home values fall, income changes, credit conditions tighten, or refinancing is not available, the borrower may be stuck with a higher payment.
That does not mean every adjustable-rate mortgage is inappropriate. It means borrowers need to understand the worst-case payment path before signing.
The Bottom Line
A 2/28 ARM is a 30-year adjustable-rate mortgage with a two-year fixed introductory period. It can create payment risk when the loan resets, so borrowers should focus on the fully indexed payment and not only the starting rate.