Also called a stepped-rate loan, graduated payment mortgages are really negative amortization loans by another name. They're a fixed-rate loan that runs for one or two years with a low payment amount to get you interested, then they change to a higher payment amount for a fixed number of years — usually five to seven years — before they stabilize at that level. Note that these are not adjustable rates, instead, they are adjustable payments. Yet because the lower payments at the start will not match a conventional loan at that rate, you'll be behind on your interest payments almost from the start. So unless you're in a real estate market where you know you'll be accumulating equity at a rate faster than what you'll be required to start paying down the loan, or you plan to refinance or sell quickly, this is not a good long-term option.

Before you settle for a loan that begins with a teaser rate, a graduated payment option, or any other incentive that gives you lower payments at the start of a loan, grill potential lenders on the worst-case scenarios associated with these products. And if they try to brush off the negatives, walk on.

If you do choose such a loan, make sure your finances are stable, your income is expected to rise steadily (with no fear of a layoff), and you have an exit plan that will get you into a more stable financing situation later.