Okay, let's analyze this properly. Assume the standard 30-year loan rate you might get is 6.25%. If you believe the numbers from the Wikipedia page (dubious at best), then your broker's kickback could be as high as 4% of the value of the loan, or $12K. For starters, that's hard to believe, so let's tone it down to 1% of the value of the loan, or $3K. If that's all it is, then he's taking the entire kickback and giving it to you to make up for the difference in loan rates. He's gambling that he gets more on the kickback than he owes you in the deal.

And, oh by the way, there are significant closing costs on a loan. What I've done in the past, when refinancing, is to bid one broker off against another, faxing term sheets back and forth, telling both sides that I'll take whoever gives me the best terms with zero up-front costs. In effect, I forced the brokers to eat into their kickback to cover the closing costs.

Look at this from the bank's perspective. If the banks ever gave kickbacks big enough to finance this sort of shenannigans, then it would suck them dry. As a result, the banks have an incentive to push down the kickback rates.

Now, look at it from the broker's perspective. Assume that one of these four-month periods is up and he's not able to find you a loan that satisfies your terms and where he still makes money. That forces him to either get you into a higher-rate loan, so he gets a bigger kickback, it forces him to loose money on the deal, or it forces him to tell you that you're stuck in your present loan. In essence, if the underlying loan rates are going up, you're still stuck with what amounts to an adjustable rate mortgage.

My advice, for what it's worth: stick with "traditional" mortgage products. When your ARM converts to variable rates, you have three choices. Refinance into a fixed rate loan, refinance into another ARM, or stick with the existing ARM. If you see yourself in the place for the long term, then go for the fixed rate and be done with it. If you see yourself selling in the next five years, see what you can get with another 5/1 ARM (probably higher closing costs unless you go with a higher rate).