So your loan officer told you "All you need to do is keep paying your mortgage on time for 12 months and we'll get you out of this with no problem." Now with the slow down in the real estate market you don't have enough equity to refinance and the rate on your Adjustable Rate Mortgage is about to explode higher.
The 2/28 Adjustable Rate Mortgage is the one of the most misunderstood and misused mortgage loans in the industry. This loan operates with an initial "teaser" rate for two years, followed by a steep payment increase. These loans are designed to be refinanced in 2 years or they will explode with a huge jump in rate and payment after the short fixed period. The lenders who make these loans actually expect them to be refinanced in 2 years or less.
Keep in mind lenders do not want to own your home. They are not in the real estate business, they are in the lending business. What all lenders want is for the loans to be paid on time. They do not want to have to foreclose on them.
Unfortunately, what ends up happening is the loan officer figures, the real estate market is hot and with homes appreciating at 10% or more per year there will be no problem in refinancing out of this in 1-2 years, regardless of the Loan to Value, even if it's 100% financing. The problem is these loan officers are nothing more than sales people with no finance or Real Estate experience. They think that 10% appreciation is low to normal. They don't realize that 5% is a much more realistic appreciation rate and that after a hyper inflationary period home prices will begin to flatten out or worse go down.
Now these poor souls that trusted their loan officer with the largest transactions of their lives are going to lose their homes. Some of these loan officers are actually dishonest and promise the borrowers that their loans are fixed rate loans. When their client asks them "is my loan fixed" the loan officer says "Yes absolutely". They'll say that technically, they aren't lying because it is fixed, which it is, just not fixed for the term of the loan, which as far as I'm concerned is dishonest because they know what the client is really asking.
These 2/28's adjustables are designed to be short term loans to solve a short term problem. I have used them a number of times to help a client clean up a credit or income problem and refinance them into something better. But, I never assume that the home will appreciate or has to appreciate to get out of a 2/28 adjustable.
If there is not enough equity left to get a client out of a short term loan then I will recommend the client look for other alternatives including possibly selling the home. It is not ethical to make money at a client's expense. It is a loan officer's job and responsibility to properly advise their clients.
The 2/28 Adjustable Rate Mortgage may be the perfect loan for you or it may be a disaster waiting to happen. You need to work with a mortgage planner not just a loan officer to help determine what is right for you. Any loan officer who doesn't require a minimum of 30 minutes of your time to help you plan out your financing is just out to make a fast buck at your expense.
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