Ignorance is not always bliss. Many homeowners with adjustable-rate mortgages have learned this the hard way as hidden costs, rising interest rates and institutional meltdowns have skyrocketed their payments like Fourth of July fireworks. The Fed is clamping down on exotic and subprime mortgages, but is it safe to go back into the dicey waters of even prime ARMs again?

There’s no hard-and-fast rule, but to determine whether an ARM is right for you boils down to three essentials: your income, how long you want to own your house and the state in which you live.

“If you have a relatively wealthy individual with a good income who can easily make a payment that’s 2 percent above what the rate would be with an ARM, that person would easily be a good choice,” says Paul Decoff, chief lending officer for Thornburg Mortgage, a leading provider of adjustable-rate mortgages. “He or she has to be able to deal with the payment shock or refinance into a fixed-rate loan if the rates go high.”

Anne Canfield, executive director of the Consumer Mortgage Coalition, a trade association of lenders, adds that homebuyers who don’t plan to live in a house for long are good matches for an ARM. “People who work for big corporations and get transferred around a lot are appropriate candidates,” she says. “Inappropriate candidates are people on fixed incomes whose wealth is not likely to increase substantially over the next few years.”

In the past year many states, including New York, Ohio, Massachusetts, North Carolina, Iowa and Minnesota, have stepped up their efforts in protecting consumers by outlawing certain types of loans. Last August, for example, option ARMs, an adjustable-rate mortgage in which the interest rate adjusts monthly and the payment adjusts annually, were banned in Minnesota, which affected consumer confidence in prime ARMs.

“I don’t know if I’d say ARMs are obsolete, but the majority of people I talk to aren’t interested in them,” says Adam Perry, a mortgage banker for Edina-based Summit Mortgage. “It’s a combination of the media, their personal experience and the barbecue-grill chatter.”

It’s also because Minnesota changed the qualifying standards for borrowers, forcing them to qualify on a fully indexed interest rate rather than the initial rate of an ARM. Borrowers have to qualify at the outset for the highest possible rate to which the loan can adjust.

“The intent of a loan is to put you in a better financial position, not a worse one,” says Perry. “Right now, nine times out of 10, an ARM is going to be higher than a fixed-rate mortgage.”

But ARM interest rates can fluctuate on a daily basis, so if you’re planning to buy a home the best advice from mortgage and real estate experts is basic: “Obviously you have to go in with your eyes wide open, understanding the loan terms,” says Walter Molony, spokesman for the National Association of Realtors. “It’s something you need to talk about with a financial planner, and be very clear about the small print.”