Over the last few months, we have seen a trend of rising interest rates. Not a large jump, but a trend. And many industry watchers expect to see even higher rates toward the end of the year.

What does this trend mean to those of us in Atlanta who are trying to make the most of our finances? Here are several observations that may apply to you:

* Look for long term home mortgage interest rates to rise to around six percent by the end of this year. This increase would be in line with the gradual expansion predicted by the Federal Reserve, and would likely not stir fears of an over-heated economy that Chairman Greenspan has warned against.

* Look for the residential real estate market to remain healthy as relatively low rates still attract buyers, especially as incomes rise. In terms of resales, I predict the second best year in Atlanta real estate history. Last year was the best.

* Look for more increases in the LIBOR index and the Prime Rate, both of which have already seen jumps this year. This increase will perhaps be more marked, and may cause an increase in the interest expense of your home equity line of credit or your LIBOR-based home loan.

* As interest rates begin to rise, watch for home mortgage lenders to begin offering a wider variety of adjustable and hybrid loan programs. This might include a 3/1 adjustable rate mortgage with a low "teaser" fixed rate for the first three years, followed by an annual adjustment to market rates. This type of loan is popular among lenders because it effectively shares the risk of higher rates with the borrower in exchange for a three year fixed period.

* Watch for lenders to move away from the more volatile LIBOR index in favor of the more stable one year Treasury index. Also, look for lenders to reinstate annual caps and lifetime ceilings on adjustable loans, a practice that was often abandoned in LIBOR programs. The annual cap limits the amount of increase or decrease on an annual basis, often to one or two percent. The lifetime ceiling limits maximum rate movement over the life of the loan, often to five or six percentage points.

These caps and ceilings have a dampening effect on any sharp interest rate movements, and make payment increases easier for many consumer budgets.

Smart borrowers should be looking right now at any adjustable debt and taking steps to replace it with long term fixed rate loans.

In other words, if you have any balance on your home equity loan, or you have any credit card debt or auto loan debt, now is a great time to refinance with a fixed rate loan and pay off all your adjustable debt, because rates are likely to go up.

Another benefit of moving debt from your car to your house is the tax issue.

Let’s say you have a balance on your car loan of $10,000 at 9%, and you carry $10,000 on your credit card at 18%. That works out to $20,000 of debt at an average interest rate of 13.5%. Assuming no principal payment, your interest expense for one year

would be about $2,700, and that amount would be paid with after-tax dollars.

By shifting the debt to your house in a refinance loan, you would drop the interest rate to approximately 6%, and your interest expense would drop to about $1,200.

In addition, the interest you pay on your refinanced home loan would likely be tax deductible. If you already itemize your deductions, you might lower your effective interest expense by another third, perhaps saving another $400.

As you can see, the difference is substantial and worthwhile.

The technique I have just described is called "debt shifting," and is beneficial to most taxpayers. However, it would be a good idea to talk to your tax preparer to make sure you would see real savings.

That’s because there are limitations on the deductibility of home mortgage interest. For example, the IRS limits your interest deduction to interest on the debt used to acquire your home, plus an additional $100,000 for home equity debt. The additional hundred thousand of allowable debt can be any form of loan that uses your home as collateral. That means it can be either a new refinance loan or a home equity loan. It can also be any combination of the two.

But the important thing to remember is this: in order for the interest to qualify as deductible, your house must be listed on a recorded security deed. In other words, you must have posted your home as collateral for the loan involved.

Never forget that when you sign any security deed, you have placed your own home at some degree of risk. If, for any reason, you are unable to make your monthly mortgage payment, your lender has the right to declare your loan in default. So make sure this form of debt structuring is right for you.

That concern aside, I believe short term adjustable instruments are destined to see higher rates, and if you have a chance to shift to a fixed rate loan, you will probably be glad you did.