When to Get an Adjustable-Rate Mortgage

Adjustable rate mortgages were hot stuff a few years ago -- but that was then.

ARMs recently accounted for just 8.3% of new mortgage applications during the week ending May 9. That was up from 6.8% the week before, but down from a peak of around 34% in the first quarter of 2005, according to data from the Mortgage Bankers Association.

You can't blame consumers for their wariness. Most of us have heard stories about homeowners whose ARM payments skyrocketed when rates rose. And in fact, the misuse of ARMs helps account for the recent wave of foreclosures and a rising tide of wrecked consumer credit.

Nevertheless, there are still some situations where choosing an ARM over a fixed-rate mortgage makes sense for consumers -- in particular, those who are likely to move before (or soon after) their rate resets, and who know that they can weather potential rate hikes should their plans change. ...