ARM's vary in quality depending on how they are indexed, the size of the add-on "margin" and the period and lifetime "caps" which help determine the extremes of the loan and how volatile it can be. ARM's typically give you a low first year rate as a "teaser" then adjust to market rates at the prescribed interval.

ARM's are usually best for you if interest rates are high and you can follow the rates down as they decline. Then, if you are going to remain in the property long enough to recoup your costs, you refinance the ARM to something more stable when rates are down. An ARM can also be good for you if you are only going to be in the property two or three years then sell. Even at worst case increases, you will probably average a lower rate over the time than if you took a fixed rate loan initially.

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