Adjustable-rate mortgages are getting a lot of slack lately, because they were a major culprit in the housing market collapse. However, if used properly, they also have a good side — let me explain …

The bad side (kind of): most adjustable-rate mortgages start off with a fixed rate for an initial period of time, usually 3, 5 or 7 years (ok, if you plan to sell before this time is up). During this introductory period, the interstate rate is fixed and will not change. After the introduction period, however, the loan converts to an adjustable-rate (not ok, if you can’t sell, or plan to still live there, after this).

The good side (for house flippers): the interest rate on this type of home loan is lower than a traditional fixed-rate mortgage (great if you don’t have an adequate down payment). The downside, however, is that you can never predict the interest rate it will adjust to after the introductory period. So in this regard, you can think of this initial period as a reward for the uncertainty of the adjustable period. You will start off with a lower interest rate than a regular fixed-rate loan, but you have the uncertainty of the adjustment phase.

Both: during the adjustable phase of the mortgage, your monthly payments will rise and fall with average interest rates. It would be great if they fell, but bad if they rose. The important thing to remember is that you’ll have no way to predict the average interest rates in advance, so the adjustable nature of the loan is something of a gamble.

For those who want a sure bet on the life of a loan, this is probably not your best option!