An even riskier option is a one-year ARM, which has an initial rate that lasts only 12 months before it begins to adjust, usually annually or monthly.
This type of loan typically has a lower rate than a 30-year, fixed-rate mortgage. In early January, for instance, the rate on a one-year ARM was 1.5 points lower than the rate on a 30-year fixed, according to a Freddie Mac survey of lenders. The rate on a one-year ARM also should be lower than the rate on a hybrid.
Thomsen says the savings on a one-year ARM aren't worth the risk, however.
"We would never recommend that," he says, "You only have 12 payments at a certain rate, and the difference between a seven-year rate and one-year rate is minimal."