A surprising shift in interest rates is reshaping the landscape for home buyers and borrowers.

As the Federal Reserve has boosted short-term rates, it has become more expensive to take out adjustable-rate mortgages and home-equity lines of credit. Usually when short-term interest rates go up, long-term interest rates go up as well. But confounding many experts, rates on 10-year Treasurys -- the benchmark for long-term, fixed-rate mortgages -- have been edging downward or moving sideways.

The upshot is that ARMs are getting costlier while fixed-rate mortgages have been getting less expensive. And that means ARMs _ which can offer big savings over long-term fixed-rate mortgages _ are losing some allure. Currently, rates on one-year ARMs average 4.36 percent, just 1.35 percentage points below the 5.71 percent rate on 30-year fixed-rate mortgages.

As recently as last July, one-year ARMs were averaging more than two percentage points below 30-year fixed-rate loans, according to HSH Associates, financial publishers in Pompton Plains, N.J.

Some lenders are starting to see a shift in borrower preferences, as people begin to trade in short-term ARMs for fixed-rate loans or adjustables with longer fixed periods. At Wells Fargo & Co., the proportion of borrowers choosing fixed-rate loans has risen to levels not seen since last March. More borrowers are also opting for adjustables that are fixed for the first 10 years. Countrywide Financial Corp. says refinancing activity has been "exceptionally strong."

If long-term rates edge down much further, some mortgage analysts predict a refinancing boomlet. As many as 65 percent of borrowers could profitably refinance if long-term rates drop to 5.40 percent, says Dale Westhoff, head of mortgage research at Bear Stearns Cos.

Nationwide, refinance activity rose 4 percent last week, the third weekly increase in a row, according to the Mortgage Bankers Association's application survey, the highest level since last April. Appraisal firm Mitchell, Maxwell & Jackson Inc. estimates that refinancings in New York City climbed 54 percent in January. Most of those borrowers moved out of short-term adjustables, says the firm's chairman, Jeffrey Jackson, who recently replaced his own jumbo short-term ARM with a 10-year fixed-rate mortgage. "The yield curve has flattened," he says. "Adjustables are barely a savings." A flattening yield curve means that the gap between short-term and long-term rates has narrowed.

Usually long-term rates move up when short-term rates increase. Instead, just the opposite has been occurring. Rates for 30-year fixed-rate mortgages have been closing in on last year's lows of about 5.53 percent, though they rose slight last week.

Fed Chairman Alan Greenspan testified to Congress last week that the flattening of the yield curve "contrasts with most experience." He called "the unanticipated behavior of world bond markets ... a conundrum."

Many borrowers haven't fully taken stock of the new interest-rate picture, in part because they aren't tracking mortgage rates closely. Also, competition among lenders has helped keep rates on ARMs lower than they might otherwise be. "We've seen lenders increase the amount of the initial discount on the interest rate they offer to consumers who go to an ARM," says Frank Nothaft, chief economist of Freddie Mac. That discount climbed to 1.50 percentage points in January, up from 0.40 percentage points a year ago, he says.

Still, some mortgage brokers who were pushing short-term ARMs before the Fed began raising rates are changing course. David Soleymani, a mortgage broker in Los Angeles, says he's been calling clients with short-term ARMs and home-equity lines of credit and urging them to switch into a fixed-rate mortgage or longer-term hybrid. A year ago, Gibran Nicholas, a mortgage broker in Ann Arbor, Mich., was putting 90 percent of his customers into adjustables tied to the London interbank offered rate, a short-term rate index. Now, he's focusing on so-called 10-1 hybrids, which carry a fixed rate for the first 10 years.

Short-term ARMs are "considerably less attractive" than they were just a year ago, says Keith Gumbinger, a mortgage analyst with HSH. A borrower with a one-year adjustable can expect the rate on the loan to rise to the "mid to upper fives next year," even if interest rates don't change, he says -- about the same as the current rate on a 30-year fixed-rate mortgage. By the time you get to year three," Gumbinger adds, "you've bled away much of the value" of a one-year adjustable.

Home-equity lines of credit, while still popular, are also losing some luster because they, too, are tied to rising short-term rates. Lou Barnes, a mortgage broker in Boulder, Colo., says he started getting calls from anxious borrowers just after Christmas. "People who got into a home-equity line 18 months ago with a 3 percent rate are now staring at 5.5 percent," he says. Home-equity lines of credit are typically tied to the prime rate, which has climbed to 5.5 percent from 4 percent in June.

Anthony Gill, an art-department technician in Auburn, Calif., decided to turn his $60,000 home-equity line into a $100,000 fixed-rate loan in January after the rate increased by 1.75 percentage points. "We decided, 'let's stop the bleeding,' " Gill says.

Other borrowers are paying down balances. James Ebentier, a retired consultant in Scottsdale, Ariz., took out a $150,000 home-equity line two years ago. With rates rising, he's paid down all but $20,000. His rate will climb to 5.25 percent this month, Ebentier notes. "I can't get the same return on bonds and dividends," he explains.