2/28 ARM vs. 2/1 ARM

What is the difference between a 2/28 ARM and a 2/1 ARM?

1 Answer

This could be a simple or a complicated answer depending on the real question.

Usually, when we talk about ARMS (adjustable rate mortgages), the first number is almost always the number of years that the interest rate is fixed. The second number is usually either the remaining years of the loan (the adjustable period), or the time that passes between interest rate adjustments.

For example:

2/28 = 2 year fixed loan, adjustable for the next 28 years.

2/1= 2 year fixed loan, adjustable every year thereafter.

In most cases, these will be the same loan. The 2/28 likely adjusts every year and the 2/1 likely will be a 30 year loan, making it the same product as the 2/28 (2+28 = 30).

The other point to note is that "2/1" also refers to a 2/1 buydown.

This is not an ARM, but rather a fixed mortgage where the first year is 2% lower than the interest rate, the 2nd year is 1% lower than the interest rate, and all remaining years are the actual interest rate of the loan.

The 2/1 buydown is not all roses though, as the price you pay for being able to drop the rate for the first two years is higher than normal interest rate for the remaining 28 years.

If this does not adequately answer the question, please let me know and I will update this answer.