It's not that balloons or ARMS themselves are suddenly more attractive. Rather the allure is in the number spread.

A year ago a $200,000, 30-year fixed-rate mortgage, at 7 percent interest, would have brought monthly principal and interest payments of $1,331. Push that up to about today's rates - say an even 8 percent - and the cost jumps to $1,468. The difference: $137 a month.

Now try on a 1-year ARM. Generally a 30-year loan, it starts out at a low interest rate that's recalculated periodically. This means monthly mortgage payments can go up - or down. Typically there's an upper limit. (See the rate chart accompanying this story, which shows when various ARMs adjust and the "lifetime cap," or highest interest rate the borrower would ever have.)

Today the rate for a 1-year ARM is about 6.6 percent. On a $200,000 mortgage, the borrower will face first-year principal and interest payments of just $1,264. That's $204 a month less than the payments for a 30-year loan with an 8 percent fixed rate. The borrower would save almost $2,450 the first year. And that $200 a month can mean the difference, lenders say, between being able to get into a house or not, between being able to move up to a bigger house or not.

That was the case with Judith and Stevan Korac. Longtime renters, they toyed with the idea of buying, but Judith fretted that rising housing prices meant that by just treading water financially they were actually falling behind. And she was right.

She also knew her family, including Danijela, 15, Nick, 9, and Patrick, 5, needed a house and that waiting wasn't going to improve their chances.

She also knew she and Stevan were committed, at least for the present time, to her being an at-home mom while he supports the family. He's a waiter in an Eastside Italian restaurant.

So she didn't give up, deciding instead to get more information.

That came initially from a first-time home buyer class, then from talking with a mortgage officer at Keystone Mortgage.

"We found there were a lot of options out there we weren't even aware of," Judith Korac marvels. "Once we were able to make a choice about what was going to work for us financially, it opened up a whole new area of homes we could look at."

Indeed, she figures the difference between her 6.5 percent ARM payments versus an 8 percent fixed-rate loan gave her family almost $40,000 more buying power.

With her youngest now in school, Korac plans to get a job before her ARM is recalculated next fall, in effect insulating family finances should their monthly payment rise.

Meanwhile, lenders are working hard to develop a wide array of mortgage products.

At Washington Mutual, Brad Blackwell says the "Option ARM" is the most popular loan. It's an adjustable-rate loan with an initial interest rate of 3.45 percent. The interest rate adjusts upward after the first month, but the borrower can elect from four payment options, including paying their initial low mortgage payment amount for the entire first year of the loan.

Obviously if the borrower decides to make payments calculated at 3.45 percent interest, those payments won't cover the entire first year's interest due - but that is one option.

Keystone Mortgage senior loan officer Geri Nelson and Jim Lee, Seattle branch manager of CTX Mortgage, are both touting the FHA's adjustable-rate loan, particularly for the first-time buyer whose mortgage will be under $208,800 (and purchase price under $215,000). That's the FHA loan limit for King and Snohomish counties.

This product, Nelson explains, carries a 6 1/4 percent interest rate, no discount points (a point is equal to 1 percent of the loan) and cannot go up more than one percent a year, or 5 percent over the terms of the loan.

In addition, FHA borrowers who put 3 percent down are eligible to have the seller pay closing costs, thereby shrinking the amount of cash needed to move in. If borrowers eventually want to change to a fixed-rate loan, there's a streamlined process to do that, too.

"The other thing we're seeing," Nelson observes, "is a lot more moms and dads chipping in with down payments as co-borrowers (which the FHA program allows). For a long time we saw hardly any co-borrowers, but now parents are having to help.

"That's the only way the kids can get the loan down far enough to where they can make the payments."

Ron Poborsky, Norwest Mortgage's Bellevue branch sales manager, says a popular option for buyers of homes with mortgages over $240,000 - so-called jumbo mortgages - is a "purchase money second mortgage."

"It's a great program for people who don't want to pay mortgage insurance (a requirement with less than 20 percent down), or who may have bonuses coming in and they know they can pay off a second mortgage relatively quickly."

Here's Poborsky's example of how it might work.

Say a buyer finds a $300,000 house. In a one-mortgage deal, the buyer might put 5 percent, or $15,000, down. But the $285,000 mortgage would require a jumbo loan, which runs about half a percent higher than the prevailing rate. And mortgage insurance would be required. Cost of just the insurance: about $185 a month.

"That's a lot," Poborsky says, "so what lenders have come up with is a plan where borrowers put 5 percent down of their own money, and we give them a 15 percent-down second mortgage, and they can get a first mortgage having 20 percent down. This means they get a regular mortgage instead of a jumbo, and no mortgage insurance."

The second mortgage is at a higher interest rate; for a person with medium credit history it could be in the 9 to 10 percent range.

"Some people treat it like a car loan, accelerate it and pay it off early," Poborsky.

The big difference: unlike a car loan, the interest is tax deductible.