The adjustable rate mortgage (ARM) is often a bargain. So are the 30-year, fixed-rate
loans under 10 percent.

Some important details you should know about your ARM selection are:

• How often will it adjust?

• What is your index? The index is the identified base used to set your rate every time it adjusts - for example, a one-year treasury security for a one-year ARM.

• What is your margin? Margin is the spread between the index and your new rate at the time of adjustment.

• What are your caps? Caps are the maximum adjustments allowed, both short-term and for the life of the mortgage loan.

"Flex" is a slang phrase assigned to a loan that will change types in the future. The
key to understanding the description is the numbers assigned to the word "flex." An
example would be the 5/1 flex. This means, a 5-year fixed-rate mortgage with a
change to a one-year ARM for the remainder of the term after the initial five-year period.

These loans are available in many variations. In exchange for this future adjustment,
the initial fixed term will be at a substantial lower interest rate than a full-term level
fixed-rate mortgage.

It is important that you read the disclosure form for the loan you select. You should
understand exactly what the worst case scenarios could be in the future. All of the
adjustment terms should be clear. The features will include all of the standard ARM
loan descriptions such as the index, margins and caps.