"2/28" and "3/27" mortgages can be a good way for consumers with less-than-perfect credit to buy a home and improve their credit scores.

They're certainly a safer alternative to the dangerous option ARMs or "1% mortgages" brokers have pushed on subprime borrowers over the past several years.

The best 2/28 and 3/27 loans offer realistic rates and terms that don't unduly punish borrowers for past sins and credit scores in the low 600s, or even the 500s.

These adjustable-rate mortgages (ARMs) almost always begin with an introductory rate for the first two or three years that's comparable to what borrowers with far better credit would pay.

Loan officers typically tell customers not to worry about what happens when the interest rate begins to adjust.

If the borrowers make their monthly payments on time, their credit scores will improve, allowing them to refinance to a lower-cost loan before rates on their 2/28 or 3/27 loan reset.

While that's an admirable goal, refinancing is never a sure thing.

You need a mortgage you can live with if you can't refinance. Indeed, it's what separates good loans from bad ones. Here's what to look for:

• Interest rates should reset no more than once a year.
• Increases should be limited to less than 2 percentage points a year.
• The maximum rate should be capped at no more than 6 percentage points more than the original rate.

Those are the kind of terms borrowers with good credit typically get when they take out an ARM.

You've got to spot -- and reject -- more onerous terms, such as rates that can reset every six months, or climb as much as 4 percentage points at the first reset.

Interest rates on bad loans like that can climb from 6% to 12% in less than a year, nearly doubling the payments in a matter of months. It's why they've been dubbed "exploding" or "toxic ARMs."

Avoid that pitfall and you have a much better chance of successfully repaying a 2/28 or 3/27 mortgage than a loathsome option ARM, which:

• Mislead buyers into borrowing more than they can afford with ridiculously low "teaser rates."
• Begin boosting those rates almost immediately, often after just one or two months.
• Reset rates every month -- not every year -- and raise them higher and faster than limits on conventional ARMs ever allow.
• Encourage borrowers to make a "minimum payment" that isn't even enough to cover the monthly interest charge. The difference is added to the balance, which means borrowers fall deeper into debt with every check they write.

Anyway you look at it, 2/28 and 3/27 loans simply aren't as deceptive or as dangerous.

The one unattractive trait these mortgages share with option ARMs is that they usually come with steep prepayment penalties.

That's not surprising, as about 70% of subprime mortgages have prepayment penalties, compared with about 2% of conventional loans. But it shouldn't be a problem as long as the penalty expires before the interest rates begin resetting or your job doesn't require you to relocate to another city.

Lenders that made lots of ill-advised subprime loans over the past several years are now facing a wave of missed payments and foreclosures.

They're swinging to the other extreme and cutting off credit for consumers with poor credit scores. Several major providers of subprime loans, including Wells Fargo, Washington Mutual, Option One and First Franklin, have recently stopped offering 2/28 or 3/27 mortgages, or both.

While that will make it tougher to find one of these loans, don't give up until you've shopped around and received rates and terms from two or three lenders.

A good place to start is our extensive database of the best interest rates on 2/28 and 3/37 mortgages from banks and mortgage companies across the country.

By Carolyn Siegel

Interest.com Associate Editor

Have a question about your finances? Ask us at editors@interest.com