NEW YORK (CNN/Money) - Should you choose an adjustable mortgage over a fixed rate loan? If you listen to many financial experts, the answer is a clear no. After all, they say, rates are at seven-month lows and compared to where they've been over the past few decades, they are downright puny.

But on Monday, Alan Greenspan, the chairman of the Federal Reserve, said that mortgage shoppers would have been better off questioning the conventional wisdom.

CNNfn's Gerri Willis shares five tips on what you need to know about variable rate mortgage loans. Play video (Real or Windows Media)

Speaking to the Credit Union National Association, Greenspan said, "Many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade."

Adjustable rate mortgages, or ARMS, are mortgages where the interest rate adjusts periodically; and over the last few years they've become increasingly popular.

But should you have a variable rate mortgage? Here's 5 tips about what you need to know about variable rate mortgages.

When you're weighing whether or not to get into an adjustable mortgage, you'll want to know the terms your mortgage broker is using.

Mortgage rates Kind of mortgage  Rate  3/1 ARMs  3.97 %  5/1 ARMs  4.53 %  7/1 ARMs  4.99 %  10/1 ARMs  5.36 %  30-yr FIXED  5.58 %     Source:  HSH and Freddie Mac

Common types of ARMS include 3/1 or 5/1 or even 5/2/5. Check out these rates for various types of adjustable rate mortgages.

Let's take the 3/1 loan. Translation: You've fixed your initial rate (the one below the rate you'd pay for a 30-year-fixed rate) for three years, but after that it can float once a year in each subsequent year of the loan.

Another common set of terms on a variable rate loan is known as a 5/2/5. That means that the first time the rate on your loan resets it could jump as much as 5 percent. The average annual cap after that reset is 2 percent and the lifetime adjustment can only be 5 percent.

Most adjustables also have interest rate caps, which, like they sound, set a limit on just how high your interest rate can go.

Economists and others have said the economic recovery that is taking hold will ultimately push interest rates higher, but we've yet to see any dramatic change. Even now, forecasts call for modest, not dramatic changes in rates.

Doug Duncan, Sr. V.P. and Chief Economist, Mortgage Bankers Association, said, "We expect modestly rising interest rates but really not starting until the second half of the year. We think that for the first half of 2004 rates will stay under 6.0 percent for a 30 year fixed rate mortgage, and in the second half they'll go above 6.0 percent but not very far -- at the most we see them ending 2004 at 6 and a quarter percent."

However, rates can change -- and change dramatically -- and any mortgage shopper should consider their own ability to stomach the ups and downs in rates.

Since you are locking in bargain basement rates only for a specified period of time usually the first 1, 3, 5, 7, or 10 years of the loan, you'll want to be OUT of that loan by the time it first resets.

That's right, you're not intending to hold this loan for 30 years. You'll either move or refinance. But you need to be able to predict with some accuracy how long you intend to be in the house so you can buy the right product to match that plan.

Avoid prepayment penalties. Some banks will charge you a fee if you decide to refinance before your loan term is complete.

Your loan's rate will track some sort of index or benchmark. A common one is the yield of the one-year Treasury bill. Another is 11th District index, which tracks what bank rates are in California.

Does it matter? Of course it does. Some indexes will adjust rapidly to rising rates -- a big risk for adjustable rate mortgage holders, while others will adjust more slowly.

Ask, too, about the margin used to calculate your rate of interest. That's because the interest rate doesn't mimic the indexes -- it floats above them. That's right: your banker will charge you a margin over the index, so ask for that number too.

The cost of adjustments Monthly mortgage payment on $200,000 adjustable loan     4.5 %  $1,013  6.5 %  $1,231  9.5 %  $1,593   Source:  Bankrate.com

If you sign up for an adjustable rate loan, you'll want to do the math on just how much you could be on the hook for if your interest rate were to jump to the highest levels possible under the terms of the loan.

Consider the example above.

Gerri Willis is the personal finance editor for CNN Business News. Willis also is co-host of CNNfn's The FlipSide, weekdays from 11 a.m. to 12:30 p.m. (ET). E-mail comments to 5tips@cnnfn.com.