When the interest rates are low, it is smart to lock into a fixed rate; one you know will never rise even when the prime rate does. Flexible mortgages become more enticing when the prime rate has moved upward.

Flexible rate mortgages start out at a lower rate (often significant) than fixed rates. Then depending on how they are set up, the rate is locked in for the first few years. After that initial grace period, things can get ugly. In the late 70's many people found their interest rates climbing into the 20% zone and their payments pushed them right out of their homes.

If you are looking to a flexible rate mortgage for the lower interest rate or for the lower payment then keep a few things in mind.

1. The rate you have today is not permanent. It will increase yearly, as long as the rate goes up.

1. You can negotiate the amount a rate can increase each year - .5% or 1% is about standard. This gives you a safeguard incase rates take a dramatic increase.

1. Watch the rates. If there is a large increase predicted then it could be a smart time to lock in the rate you have by refinancing to a fixed rate.

Flexible mortgages can be a money saver, but they can also cause financial ruin if they are not handled correctly. Remember that the rate you are getting is only temporary. It may last for three years, five years, or just one year, but with the prime rate poised to increase, it is likely that flexible mortgages will also see a rise in rates in the future.

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