Adjustable-rate mortgages that offer borrowers more time to convert them into fixed-rate loans are quickly gaining popularity among many Washington-area home buyers and lenders.

Brian Hershkowitz, operations manager for Lomas & Nettleton, a mortgage lender, said that since his company started offering the new convertible adjustable-rate mortgages on July 27 his office has received seven to 10 calls a day about them. The loans are structured to allow borrowers to convert to fixed-rate mortgages any month during the second through fifth years of their loans.

Russell Rotchstein, a vice president for Investors Home Mortgage Corp., which has offered convertible mortgages since June 18, said that these loans now account for one-third of all new business at his firm.

"They're really hot," said Gene Eisman, a spokesman for the Federal National Mortgage Association (Fannie Mae), which buys loans from primary lenders and markets them as securities. He said more than 100 lenders across the country signed up to offer the loans during the first three weeks after Fannie Mae started its convertible mortgage purchase program in June. The congressionally chartered mortgage investment corporation has agreed to buy $100 million in convertible mortgages.

Typically, home buyers have been wary of adjustable-rate mortgages that leave them vulnerable to rate hikes and increased monthly payments. But recent interest rate increases have pushed the cost of fixed-rate mortgages beyond what some buyers can afford. Consequently, many have turned to adjustable mortgages whose lower rates and mortgage payments make it easier for buyers to qualify for them.

Although many adjustable mortgages already allow borrowers to lock in interest rates, they often do so only on a limited and costly basis. Carol Lee, a loan officer for First Union Mortgage, said that most adjustable mortgages allow homeowners to lock in interest rates for the remainder of their loan only on the third, fourth and fifth anniversaries of their loan settlements and then only during a 30-day period following the anniversaries. For adjustable loans that don't have this option, borrowers have had to refinance, which Lee said can often cost 3 percent or more of the loan amount in closing costs and take two months or longer to settle.

But the new convertible mortgages are much more flexible, Lee said. They allow a borrower to convert his loan to a fixed-rate mortgage during the first 10 to 15 days of every month from the 13th to the 60th months of the loan.

As a result, ARM borrowers run less chance of being hit with continually higher mortgage payments because of rising interest rates. If payments get too high, the buyer can always convert to a fixed-rate loan, Hershkowtiz said.

Eisman said the new convertible mortgage also allows buyers who missed out on low interest rates on fixed-rate mortgages a second chance. Previously, "if you were waiting for a lower rate to lock in, you had only three windows {following the third, fourth and fifth anniversary dates}. And if rates weren't going your way, you had to pass," he said.

In addition, convertibility "removes the feeling of uncertainty" that people have about adjustable-rate mortgages, said Cindy Rosen, a real estate broker with Merrill Lynch Realty in Gaithersburg.

Converting the new adjustable loans to fixed-rate mortgages also costs far less than refinancing. Under the Fannie Mae convertible ARM program, borrowers pay 1 percent of their total loan balance as well as up to $250 as a processing fee. Hershkowtiz said that converting a $100,000 loan would cost $1,250 while a homeowner who is refinancing would pay as much as $5,000 in closing costs.

The process is also much simpler and quicker than refinancing. Lee said that homeowners need only call the lender who will then mail a form to the borrower to complete and return. Since borrowers are dealing with the same lender and are not refinancing, they don't have to order an appraisal or credit report or go through another title search to switch to a fixed-rate mortgage. Consequently, conversions should take no longer than 30 days to complete, Lee said.

But the convertible mortgages may not be for everyone. Hershkowitz said the new convertible adjustable-rate mortgages are geared toward buyers who are moving up to bigger houses because the loans require a 10 percent down payment, something that first-time home buyers often cannot afford.

Convertible mortgages also carry somewhat higher interest rates than normal adjustable-rate mortgages, according to Leo Dunn, a loan officer for Goldome Realty Credit Corp. He said the rate for a one-year ARM without the option to convert is currently 7 1/2 percent while the convertible mortgage is 8 1/8 percent.

Harry Myerson, president of U.S. Mortgage Corp., said convertible mortgages still are ARMs, which he called dangerous. "They are so volatile. They can jump 2 percent very quickly. At least with a conventional fixed-rate mortgage, you know what you are going to pay."