IANAFinance Professional, but I have looked into these quite a bit after being asked about them by my sister. Her mortgage broker was trying to sell her on one for a house she is closing on today.
The mortgage in question was a 1 month ARM, with a starting rate about 1 point under the 30 year fixed. It was based on an index that is at its record low, kept there artificially by a 12 month rolling average that is built into it. Since rates are rising, and will continue to rise (in my well informed opinion), the rate will catch up to the 30 year fixed in close to no time.
The other “feature/selling point” is the “low payment,” which was the option to make a payment as little as .25% of the principal- not adequate to cover the interest, so it would result in negative amortization (i.e., an increasing principal balance). The only conceivable situation I could imagine this would be good for was someone in a secure, entry level professional position whose income would be increasing- much like I was when I bought my house. It would give a person the opportunity to buy a house they couldn’t quite afford now, but would certainly be able to afford in a year or two. There would be some risk of not being able to cover the payments (if the job didn’t pan out, for example), but not much. My sister is not in that position. She took my advice and went with the 30yr fixed, and got locked in at a rate that is just about at its record low.