Attention mortgage holders: Now is the time to say goodbye to the adjustable rate.

Thanks to low interest rates and inflation-free economic growth -- two trends economists expect will continue for the near future -- borrowers would be well-advised to lock in 30 years of low payments with a fixed-rate product rather than stick with their adjustable-rate mortgages, experts say.

"Mortgage rates have been pretty stable near the low 7's (percent) and there's nothing going on suggesting that will change," says Robert Van Order, chief economist at Freddie Mac. "People should think about switching."

Different types of ARMs
Adjustable-rate mortgages, or ARMs, emerged as a tool for consumers to get lower rates than those available through traditional, fixed-rate loans during the inflation heyday of the early 1980s. ARMs give a borrower a lower initial interest rate in exchange for sharing some of the lender's risk that rates will rise.

There are several varieties of ARMs. The difference between them is how long their rates are initially set and the formulas used to raise or lower the rates. Some offer fixed rates for one, three or five years, for example, then adjust to reflect the current market rate.

The most common index for ARM adjustments is the one-year U.S. Treasury bill. The one-year bill has a yield very near that offered by the 30-year Treasury bond, which is used to set rates on 30-year fixed mortgages. That has helped lessen the gap between ARMs and fixed mortgages, making the fixed loan a better deal, since the risk that rates will rise overshadows the ARM's benefit: A slightly lower initial rate.

Comparing rates
In recent trading, the one-year Treasury yielded around 5.4 percent while the 30-year Treasury yielded slightly less than 5.7 percent. As a result, one-year ARMs carried an average rate of 5.7 percent, according to the most recent Bank Rate Monitor survey, while 30-year fixed mortgages hovered around 6.87 percent.

"ARMs certainly do provide a safety valve when rates start going up again, but shoot, if you can get a 30-year fixed at 7 percent, you might as well do it," says Michelle Hamecs, director of market analysis in the National Association of Home Builders' mortgage finance department. "That's my personal opinion."

But, because good deals can be found in today's competitive mortgage environment, people may want to consider getting an ARM with a short initial fixed period, such as a one-year, and refinancing it at the end of the term.

"Some lenders are giving big discounts on the first-year rate," Van Order says. "People should phone around to find out because there may be someone offering something under 5 percent."

Watch out for fees
Refinancing will still cost the average consumer about 2 percent to 3 percent of the total loan value in closing costs, either paid up front or tacked onto the new mortgage, according to David Keeling, a senior vice president in NationsBank Corp.'s TeleMortgage group. However, some lenders will waive the costs if a customer is willing to accept a higher rate, he says.

Even better for customers wary of fees is the conversion option written into some ARMs. With it, borrowers can usually switch to a fixed rate after each yearly rate adjustment until the fifth year of the mortgage, at a cost of $250 to $600, Keeling says. Those converting ARMs may get a higher fixed rate of interest than those seeking traditional refinancing.