So you've found out that your dream house costs a touch more than you think you can afford. But your lender says you can probably qualify for the loan if you get an adjustable-rate mortgage (ARM).

Consumers need to be cautious when choosing an adjustable loan. There are far more variables to an adjustable loan than just the rate and upfront fees. Ignoring these variables can prove costly. Nevertheless, if you carefully examine the mortgage before you buy, you can usually avoid any unpleasant surprises.

Then you need to know how much the rate can rise in each adjustment period. Most lenders will have adjustment "caps" that put a lid on how high your interest rate and payments can go. Typically, these caps amount to 1 or 2 percentage points per year. In other words, if your initial rate was 7.5 percent, the rate couldn't go above 8.5 percent in the first adjustment if you have a 1 percentage point cap. Many loans also have lifetime caps that guarantee your loan rate will never rise more than 5 or 6 percentage points above the initial rate.