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NEW YORK (FORTUNE) - Once upon a time, almost everybody took out conventional 30-year fixed-rate loans and dreamed of the day when the house was not only bought but paid for.

Today, about a third of new mortgages are nonstandard, fuzzy-math loans that have allowed many Americans to reach for more home than they can really afford.

It's been awhile since adjustable-rate mortgages, or ARMs, became popular, offering a low, fixed interest rate for a set period, after which the rate fluctuates based on interest rates at the time.

Then came interest-only ARMs, allowing more adventurous borrowers to pay just interest in the beginning.

The hottest new mortgage has been the option ARM, which allows the borrower to pay just part of the interest in the beginning and tack the rest onto the principal -- something called negative amortization.

For some buyers, these are great techniques. Perhaps you're a sales executive who receives a chunk of your income at the end of each year. Taking out an interest-only loan keeps payments low to match your monthly cash flow; you can then use that annual bonus to pay down the principal at the end of the year.

Says Doug Duncan, chief economist with the Mortgage Bankers Association: "[This kind of loan is good] for a higher-income, higher-wealth, good financial manager."

Or maybe you're a full-time mother who is planning to return to her marketing career three years from now, substantially increasing the household income. Here again, an interest-only loan allows you to lower today's payments, knowing that more resources will be available when the payments ratchet up.

But there's plenty of risk for the unprepared: When the higher bill eventually makes its big debut, the average borrower can succumb to payment shock as he faces the prospect of adding hundreds -- sometimes thousands -- of dollars to the monthly tab.

"You stuff somebody into the American dream, and it becomes a prison," says Torto Wheaton Research economist Craig Thomas.

Those who see that prospect ahead may consider switching to a fixed rate before the reset comes. "It will cost you some money [in fees]," says Mark Zandi, chief economist at Moody's Economy.com. "But in 2007, when the market is at its worst and your mortgage is resetting and you're looking for a lender to refinance you out, you just may not find one."

A fixed-rate mortgage is, in effect, an insurance policy against future rate hikes.

That's why Doug and Joann Purcell of Downers Grove, Ill., chose a fixed rate when they purchased a 3,600-square-foot home in the Chicago suburb earlier this year.

In their previous home they had refinanced with an ARM that offered an initial rate of 4.38 percent for the first three years. That translated to a savings of several hundred dollars on their monthly payment. Today they think a fixed rate makes more sense. Says Doug, a financial advisor for UBS: "Five years from now, I think I'll be very happy with my decision."

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