Rising interest rates are coming with a rising tide of advice to help home buyers and homeowners cope with the added expense.

To allay some fears, Larry Goldstone president of Thornburg Mortgage, Inc., a Santa Fe, NM mortgage lender specializing in adjustable-rate mortgages (ARMS), says mortgage interest rates will remain relatively low historically.

Even with higher rates, says Goldstone, ARMs remain a bargain.

"The advent of adjustable-rate mortgages (ARMs), hybrid ARMS, and interest-only loans will continue to bolster the housing market as interest rates rise," Goldstone said.

Likewise, H. Charles Lemire, executive vice president of Natick, MA-based RE/MAX of New England says compared to rates as high as 18 percent 25 years ago, today's interest rates remain affordable.

He says a $320,000 mortgage in today's low-interest rate economy is the equivalent of a $100,000 mortgage with an 18 percent interest rate in 1981.

"Buyers realize they can spend $200,000 more and actually pay about the same monthly payment as they were paying 25 years ago. I believe that low interest rates will continue to be the standard over the next several months, but keep your eyes on rates close to and after the election," he advises.

Still, says Sacramento, CA-based down payment assistance provider Nehimiah Corporation of America, a studied approach to home financing is the best policy.

Nehimiah offers five tips, provided here with some additional related advice:

1. Buy a home you can afford. Lenders will offer you as much as your qualifications warrant and that amount can grow with an ARM, but that doesn't mean you can afford the loan. Make sure the mortgage professional fully explains how much debt you can reasonably handle given your income and be wary of pressure to borrow more. Home buyers should obtain counseling and educate themselves about all the costs of home ownership beyond the mortgage payment, taxes and insurance.

2. Find the best mortgage product. The mortgage market is a confusing maze of loan assistance programs available from a wide variety of sources from private lenders and brokers to government and social agencies. Nehimiah says traditional 30-year fixed-rate mortgages typically make the most sense for first-time homeowners. All borrowers should obtain trusted professional help from someone who is familiar with many programs. Seek out mortgage counselors who don't write or broker loans and lenders and brokers who reveal all the loan costs -- to the penny -- before the final settlement sheet, which often is available only a day before closing.

3. The old saw is to get pre-approved. Pre-approval before home shopping allows you to see the actual monthly payment you'll be required to make each month. That will help you budget the cost of your home. All pre-approvals, however, are not created equal. The new saw advises getting a loan commitment which should guarantee you a specific loan with a specific monthly payment -- for starters.

4. Know what's included in the monthly payment. Many first-time buyers' monthly mortgage includes principal, interest, taxes and insurance (both homeowners insurance and private mortgage insurance) built into monthly payments. It is important for home buyers to realize they will need a cushion for fluctuations in some of those elements. Depending upon the type of mortgage you have all those elements can rise -- sometimes drastically. Ask the lender for specific information about which elements can rise on your loan and an estimate of how much.

5. Consider mortgage protection. To some extent, job loss mortgage insurance and other coverage can protect you from unexpected events that could affect your ability to pay the mortgage. Understand what's available, what's covered and what isn't. Some critics argue, when it comes to your shelter, you should also protect it with self-insurance -- a savings account large enough to cover your mortgage and other crucial expenses for at least six months.

Published: July 8, 2004

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.