2-2-8 ADJUSTABLE-RATE MORTGAGE (2/28 ARM)
Back to GlossaryDefinition
A subprime ARM with a fixed teaser rate for two years followed by 28 years of adjustable rates that often reset sharply higher.
Summary
A 2-2-8 Adjustable-Rate Mortgage (2/28 ARM) is a type of subprime mortgage loan that was popular before the 2008 financial crisis. It offers borrowers an initial 'teaser' rate that remains fixed and artificially low for the first 2 years to make payments affordable. After this introductory period, the interest rate adjusts (usually increases significantly) for the remaining 28 years of the loan term. These mortgages were often marketed to borrowers with poor credit or limited income, but the sharp rate increases after year 2 frequently led to payment shock and defaults when monthly payments doubled or tripled.
Usage Context
Understanding 2/28 ARMs is crucial when studying the causes of the 2008 financial crisis, subprime lending practices, mortgage market regulation, and risk assessment in real estate finance. This term appears frequently in discussions about predatory lending and financial consumer protection.
Common Confusions
- Thinking the low teaser rate will last for the entire loan term
- Confusing 2/28 ARMs with other ARM products like 5/1 or 3/1 ARMs
- Assuming all ARMs are inherently bad or predatory
- Not understanding that the '28' refers to years, not months
- Believing that rate increases are optional or negotiable
