NEW YORK (MONEY Magazine) - Shortly after they were married, Aaron and Lacey Blank, now 25 and 27, wanted just what you'd expect: to buy their first home and start a family.

But like many young couples, the Blanks had trouble scraping together a down payment for a house in pricey Seattle.

Aaron and Lacey Blank

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By the time they found their three-bedroom, newly built home 40 minutes from downtown last year, they had set aside just $16,000. "We weren't planning to buy a place so soon, but we fell in love with the home and the area," says Lacey, a family therapist.

Their stash barely covered 5 percent of the $330,000 home price, and lining up the financing proved to be daunting.

Though Lacey and Aaron, who works in public relations, earn a combined income approaching six figures, their $90,000 in student loans made it hard for them to qualify for a fixed-rate loan.

Their solution amounted to a financial high-wire act.

The Blanks took out a $271,000 interest-only hybrid ARM with a rate of 6.4 percent and monthly payment of $1,440 for five years. To cover the rest, they used a $51,000 variable-rate home-equity line of credit.

By doing so, they avoided paying for private mortgage insurance (PMI). After taxes, the HELOC's initial $346 monthly payment was less than PMI would have cost. A flush housing market in Seattle, where home prices rose 15 percent last year, has bought the Blanks some breathing room; based on recent sales in the neighborhood, Aaron estimates that their home is worth at least $380,000.

But that hasn't offered the Blanks much peace of mind because they aren't paying down principal as they'd hoped.

"I want to build some equity, but we haven't really been making much headway," says Aaron. The rate on their HELOC has already hit 10.6 percent, or another $115 a month. The $1,900 Aaron and Lacey spend on their home loans every month is still manageable, but with their first child due any day, they are understandably nervous.

In theory, the Blanks could see their mortgage rate jump as high as 11.4 percent in 2009. Add in principal payments and a 14 percent rate on their HELOC, and their worst-case scenario is a monthly nut of $3,445.

The Blanks need to lower their interest rates, and their robust local market may help them do that. The couple are paying more on both of their loans than the best rates available a year ago, says Augusta, Ga. financial planner Bill Cleveland, probably because of their student-loan debt and high ratio of debt to home value.

Now that price appreciation has beefed up their equity, and they have a track record of on-time payments, they should be able to lower their HELOC rate simply by calling the lender.

"I've had clients successfully lower their rate to just over prime by threatening to take their money elsewhere," Cleveland says.

Next up, the Blanks should lock in the rate on as much debt as they can. Taking out a new, 30-year fixed for $304,000 (the full 80 percent of their current home value) would let them pay off their ARM, shrink their HELOC to $18,000 and start paying down equity. (Many lenders will do a lower-cost refi to keep your business, so ask.)

If they qualify for the best rates, they'll be paying $2,050 a month for both loans, an amount they can comfortably swing.

• Toni Lapp: This single mom should hope for a rate turnaround. Risk: 53% increase in monthly payments.
• John and Mona Ramonetti: These risk-takers should refinance to a fixed loan. Risk: 68% increase in monthly payments.