Ever since the subprime mortgage crisis, ARMs have been the pariahs of the home loan world. People are gravitating back toward fixed rate mortgages. However, with mortgage interest rates on fixed rate home loans moving back above 5%, some are starting to reconsider ARMs for refinancing a second mortgage. And ARMs may not be all that bad. It all depends on whether you understand the risk, and how you use the ARMs.

Here is What CNN Money points out about ARMs used for refinancing:

That’s because despite their flaws, hybrid ARMs, which start out with a fixed-rate period and then adjust on a recurring basis when that period is up, still represent a smart choice for educated borrowers who understand their risks. …

The ideal ARM borrower will have a fixed time horizon (no more than a year or so beyond the fixed-rate portion of their loan) and the wherewithal, both financially and emotionally, to absorb the higher payments that could come if the rate readjusts upward. And with rates near their nadir, it’s unlikely they’ll go much further down, especially when the economy starts to recover.

This type of loan can be useful now, because in some cases, rates on a second mortgage are in excess of 7%. If you can get an ARM with fixed 4.5% rate for 3 years, and then terms that say that the loan will not increase by more than 2% a year after that, it will take at least another year beyond the fixed term to reach the 7%. You can refinance to a fixed rate at that point, or pay off the loan.

In any case, choosing an ARM because that’s the only way you can afford the payments is a bad idea. Instead, you should base your decision to get an ARM on whether or not you can afford the payments after the rate adjust upwards. Choosing an ARM because it’s the only way to afford a home is a good way to find yourself in foreclosure in a few years.

(Learn more about ARMs from the Federal Reserve Board.)