The vast majority of home owners have lower-risk fixed rate mortgages (FRMs).

That should allay some of the concerns about a housing market bubble bursting and taking with it over-leveraged home owners' greatest possession.

However, many home owners who've financed with FRMs could be missing out on lower monthly payments and other financial advantages from alternative adjustable rate mortgages (ARMs) that could help see them through hard times.

Eighty-two percent of consumers nationwide opted for a fixed-rate mortgages in 2003, according to data from the Federal Housing Finance Board released by the Homeownership Alliance.

Alaskans, at 98 percent, had the greatest percentage of FRMs, followed by Delaware (93 percent), Oklahoma (92 percent), Texas (92 percent) and New Mexico (91 percent).

At the other end Colorado and Michigan, both at 70 percent, originated the smallest percentage of FRMs, followed by California (71 percent); Illinois (73 percent) and Washington, D.C. (75 percent) -- still relatively high numbers.

FRMs are the cornerstone of the U.S. housing finance system because FRMs come with just that -- fixed interest rates. That means the monthly mortgage payment remains the same month after month, year after year. An established monthly mortgage allows the home owner to budget the mortgage payment over the long term.

Compared to ARMs, FRMs generally come with more stringent qualifying requirements, larger down payment requirements and higher interest rates. To their benefit, however, home buyers often have a larger starting stake in their home's equity, than with an ARM.

Bubble market forecasters -- those who believe the sky will fall hard on home prices -- say those with smaller equity stakes in their home, those with high loan-to-value mortgages, will be most vulnerable to the effects of sudden depreciation.

Bubble forecaster critics say the documented high volume of existing FRMs is one reason that makes bubble forecasters sound like Chicken Littles with only skinny legs to stand on.

Most home owners don't hold adjustable rate mortgages (ARMs) which generally, initially give the home owner a comparatively higher loan-to-value mortgage.

ARMs also come with the added risk of adjustment, typically an upward adjustment that calls for a larger monthly outlay, but the loans can be valuable lifestyle loans that give a home buyer a leg up on home ownership.

Because they carry cheaper interest rates, they generate smaller monthly payments and buyers can buy a larger home or a home they may not have been able to afford with a more expensive FRM.

ARMs come in a wide variety of interest-only and hybrid (fixed for a year or years before they adjust) flavors that allow home buyers time to prepare to digest the inevitable higher cost -- provided the home owner keeps the ARM.

Most don't and instead use the financial leverage to move up.

Hybrid ARMs, for example, can be a good fit because statistics reveal first-timers typically move after five to seven years when growing incomes permit the move and growing families dictate the need for a larger home. Provided there is ample appreciation, a home owner easily moves up with little initial stake in a home he or she knew was only a starter.

Granted, ARMs can be riskier than FRMs and they do require some foresight and financial planning, but especially in high cost markets, with the assistance of an experienced broker or loan officer, they can be valuable financing tools when a FRM doesn't fit.

In any market they can be the difference between home ownership and tenancy.

The added tax benefit of home loan is virtually always a better deal than paying someone else's mortgage in the form of rent.

Published: April 16, 2004

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.