Cash-flow is your primary interest. You just want the smallest out-of-pocket
payment every month. This may mean refinancing every year, but that's OK. To you it's part
of the challenge.
What You Want: When there wasn't much difference in cost between fixed-rate and
one-year adjustables, the market for one-year adjustables all but dried up. But now that the
spread has widened a bit, ARMs are back. If you want the lowest possible payments, you'll
find lenders dangling "teaser" one-year adjustables in front of your eyes.
A teaser is just what it sounds like: An introductory rate that will almost certainly shoot
up by the maximum amount -- usually 2% -- in its second year. But wait. If you're really set
on the lowest possible rate, you can go lower still. The teaser rates on loans known as COFI
adjustables -- they get their name because they're tied to the cost of funds index in the
Federal Reserve's 11th District -- are even lower.
Where to Shop: Again, your best sources for adjustables are likely to be midsize
banks and thrifts. As for COFIs, most large banks carry them. Try Citibank and Bank of
America, for example.