With the recent mortgage crisis, adjustable-rate mortgages are starting to get a bad reputation. However, ARMs still have some positive aspects. Most adjustable-rate mortgages have interest rates that change every month, quarter, year or 5 years. These time periods between rate changes are called the adjustment period. If you are disciplined with your money you can use an ARM to your advantage in a couple of ways.

Since ARMs tend to have lower rates and thus lower payments they provide savings on mortgage payments in the initial stages, before the reset of rates. As a homeowner you can use those savings for investments. If you place that money into a high-yield savings account you have the potential of building up quite a nest egg.

Another reason adjustable-rate mortgages tend to be a good idea is interest rates do drop. With a fixed-rate mortgage you are locked into your loan, but with and ARM you can refinance when the loan adjusts.

A final situation that is great for having an ARM is if you are planning on moving soon after taking out the loan. If you aren’t staying in a home for more than 5 years then you don’t need to worry about the loan resetting after that point in time. Unless of course, you have trouble selling.

Still, if you are considering an adjustable-rate mortgage there are some precautions you should take. First, make sure your loan doesn’t have any prepayment penalties. That way you can refinance into a different loan without it costing you. Also ensure that you have limited caps on both annual and total adjustment. These provide a maximum percentage increase, protecting you from astronomically raises in rates. And take your loan out with a reputable lender. ARMs can easily work for you and against you. It all depends on how you handle them.