Going ... going ... gone. Time to Dis-ARM your mortgage!

After nearly two years of warnings that home mortgage rates are heading up, economists and lenders say consumers had better take notice.

The average rate on a 30-year fixed-rate mortgage rose to 6.36 percent this week, its highest level in 16 months.

But for many borrowers and even some lenders, the more worrisome trend is rising short-term rates -- which hit a four-year high this week -- and the narrowing gap between adjustable-rate and fixed-rate mortgages. As a result, home equity lines of credit and so-called "capless" adjustable-rate mortgages are losing their luster.

"It's been a pretty phenomenal run," said Freddie Mac's deputy chief economist, Amy Crews Kutts. "I think rates will bounce around, but the outlook is that it's not going to get better. Now is the time to start thinking about reallocating that debt profile and making sure that it's in the best possible shape it can be in."

The rates on many consumer loans are tied to the prime rate, which is now 7 percent; just 18 months ago, it was at 4 percent.

Some experts expect mortgage rates to go as high as 7 percent by the end of the year, but that's well below the double-digit rates that still haunt loan officers who were in the business in the 1980s.

With the Federal Reserve Bank signaling that more increases are on the way, many loan officers already are urging borrowers with big home-equity loan balances to refinance into fixed-rate loans to avoid future payment increases. Some lenders are ramping up incentives to help sell a variety of variable-rate products.

Lenders advise action

"It may well be a good time to consolidate those loans," An the example of a recent customer who is now paying $150 a month more on a $60,000 credit line/second mortgage balance than he was paying when he borrowed it two years ago. "If you have a $50,000 [balance on a] home equity line, if you can't pay it off in the next year, you'll want to get rid of it."

Borrowers with adjustable-rate debt, including credit lines and home-equity loans, are in a somewhat more precarious position now than they were earlier this year. Many of those credit lines have interest rates that follow the prime rate, whose upward trend means now is good time to refinance those adjustable-rate second mortgages, especially for those who used the proceeds to finance home improvement projects that boosted the value of their house.

Regardless of whether you have a short- or long-term ARM, it's important to know when your rate adjusts. Those whose loans will adjust in the short term should pay close attention to the cap on that adjustment. The first adjustment on many ARMs can be as high as 5 percentage points.

ARMs have been losing their appeal because the spread between short-term rates and long-term rates is narrowing. On Thursday, for example, the rate on a 30-year fixed-rate mortgage was 6.36 percent, while a 5/1 adjustable-rate mortgage (which adjusts after the fifth year) was at 5.81 percent. That's significantly less than a one percentage point difference. On March 1, the spread was more than a full percentage point.

This shift means that when buyers are contemplating their mortgage, a long-term, fixed-rate mortgage might make sense for people who plan to be in their house longer than five to seven years -- the typical length of an adjustable-rate mortgage.