Low inflation, low unemployment, and low interest rates have fueled a nearly perfect home market in recent years, and home sales have soared. Now it is time for a normal adjustment. Rising fuel costs and other indicators show the need to head off inflation. The Federal Reserve does that by raising interest rates to slow things down a little. In February, the Fed is certain to raise interest rates again.

That means if you are a homebuyer, you can prepare to pay more for a home than last year, and pay at a higher interest rate. Does that mean you can no longer afford the home of your dreams? Not necessarily.

One of the great things about shopping for a home today is that lenders have a wide offering of loan products that will get you into the home you want at a price you can afford. The only dream you may have to give up is having a fixed rate mortgage.

The 30-year fixed rate mortgage is considered the gold standard of loans. It is one of the rewards of having good credit, but there are times when they don't make the most sense for you or your family. Two scenarios that come immediately to mind is if you and your family are planning to move again within three to five years, and if interest rates have risen to the point that you no longer qualify for a 30-year loan on the home of your dreams. If you want that home, you have to look at alternatives in financing.

The adjustable rate mortgage (ARM) is basically a shorter term, higher risk loan, but it is hardly on a second string loan product. In fact, it's a sensible loan alternative that has gained greatly in status in this new technology-driven economy. Many financial strategists, who view the home purchase as the greatest of personal investments, believe in the ARM as a means of leveraging your credit and financial means to the fullest.

Risk is calculated on an ARM. You can choose a loan with a "cap" - no more than two percentage points a year and ceiling of six points for the life of the loan, for example. That way you know up front what the worst case scenario will be should the loan go up.

The 30-year loan means that the bank shoulders the responsibility for your loan for the full term, raising the lender's risk. That's why only those with good credit need apply. But the ARM, at one or two percentage points lower in interest costs, means that you share more in the risk, but the reward is that you can buy that much more home for the money. Sounds like smart strategic planning, when you look at it that way.

New loan products, called hybrid loans, offer a short fixed rate term that rolls over to an ARM after a specified period. This lowers the risk and the cost for the borrower as well as the bank. Hybrid loans are perfect for the family who is not certain they are staying in the home for long, or for those who want to buy more home for the loan and gamble that the adjustable rate will go down later on. Some loans give you the option of renegotiating the terms after the fixed rate period has ended - you can go adjustable again, or if conditions favor, get your coveted 30-year or 20-year note after all.

The advantage is that you can still jump into the housing market knowing that if you find that perfect home, there is a financial product available that will allow you to buy it, and at terms you can afford.

Check with your lender and ask about an ARM, or a hybrid loan today.

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Published: January 28, 2000

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.