The three-year real estate boom has brought a host of exotic mortgage plans to the market.
Some are designed to help homebuyers get into houses by keeping initial payments low. Others allow buyers to take their mortgage loan with them from home to home. And others let buyers decide if they want to customize their loans so they are paid off in 10 years, 23 years or even 40 years.
Experts predict that these alternatives will become even more attractive if rates continue their recent ascent.
Thirty-year mortgage notes aren't the only options, of course, and homebuyers have hundreds more choices than their parents and grandparents ever did. To stand out from the clutter of advertised rates and points, lenders increasingly have introduced new programs allowing buyers to skip payments, pay only the interest for a few years, or get group discounts on mortgage services.
"There are so many more options," said David Motley, executive vice president of mortgage production for Colonial National Mortgage in Fort Worth, Texas. "People are definitely looking at a mortgage not just as a way to own a home, but as a way to manage their finances."
During the past year, Motley said, he's seen participation increase in a program that lets buyers essentially decide the length of their loan. Twenty-five percent of the company's customers use the program, up 10 percent from last year.
Other new programs from national lenders:
Fannie Mae is testing a program that allows the borrower to skip two payments a year, but no more than 10 payments over the life of the 30-year loan. The mortgage giant, which is also the nation's leading purchaser of mortgages, piloted the program last year through 11 lenders.
The new loan is designed for seasonal workers, teachers, entrepreneurs and others who often see their incomes fluctuate. Such workers might otherwise shy from buying a home for fear they might come up short some months.
"More customized solutions for borrowers, that's really the wave of the future," said Sandy Cutts, a spokeswoman for Fannie Mae in Washington.
However, loans that give borrowers the option of reducing or missing payments might not be good for consumers who have a tendency to pile up debt, said Greg McBride, senior financial analyst with Bankrate.com.
"Just like skipping a payment on a credit card, the interest continues to accrue," he said.
Wells Fargo Home Mortgage last year was the first of the big lenders to offer a loan that comes with instant access to a home equity line of credit via a debit card or checking account activated by a visit to the bank or by calling a toll-free telephone number.
Stephanie Jones, an insurance agent who is buying a home in Smithfield, Va., signed up for the program because the equity line is charging just under 6 percent interest.
"You can't get a credit card for under 6 percent," Jones said. "I'll use it instead of credit cards, and it's tax deductible."
The equity she began with by making a 20 percent down payment will grow as she pays down the mortgage, and her credit line increases if her home's value goes up.
Borrowers who take out such a loan, however, could get into trouble if they tap all their home's equity, then face a job loss or other financial emergency, said Brent Neiser, a certified financial planner and director with the Colorado-based nonprofit National Endowment for Financial Education.
Buyers who use the loan should write down four or five permissible uses for the home equity line, Neiser said. They should also keep in mind their goals for paying off the house.
Quicken Loans Inc. plans to soon join the growing number of lenders offering interest-only mortgages, which allow borrowers to pay only the interest for a set number of years.
A borrower who can ignore the fact that he isn't building equity - one of the more satisfying aspects of homebuying - can deduct most of his housing bill at tax time. What's more, his housing payments will be lower while paying the interest, assuming mortgage rates don't soar.
Still, there are drawbacks. Buyers who plan to sell in a few years could find themselves in a bind if they don't plan carefully with this loan, Neiser said.
Those who plan to sell in a few years but don't keep cash reserves might come up short if home prices go down, plus they have to pay Realtor's fees, Neiser said. On top of that, the owner might have to spend money on fixing up the property to sell it.
"They still owe all this money on it, and they've got to pay a real estate commission," Neiser said. "That to me is a real danger."
E*Trade this summer unveiled its "Mortgage on the Move," which allows a homeowner to lock in at a relatively low rate and take the mortgage with him when he moves.
In exchange for the portable loan, E*Trade charges interest of 0.375 percent over its rate for a 30-year jumbo loan. A jumbo is a mortgage loan that exceeds $322,700.
When rates are low, the portable loan is popular, experts said, because buyers can take it with them when they move. As rates grow, the option becomes less attractive because homeowners will have to pay more for their loan.
In general, buyers navigating the jungle of available mortgage products should consider more than just what the monthly payment will be, said Mike Kidwell, vice president of Myvesta, a nonprofit organization that helps consumers get out of debt and manage their finances.
They should ask themselves how quickly they want to build equity, how long they'll be in the house and what their income will be in the future, he said.
Low interest rates make homebuying more affordable, but getting a low rate isn't a good reason to buy a house, he said. Nor are tax benefits or the fact that buying a home is a better investment than renting. Some benefits can be whittled away by trips to the home improvement store.
He tells clients to go ahead and buy if they live comfortably on what they earn, and their monthly expenses won't rise.
"This isn't a trip to the mall, where you spend $200," Kidwell said. "When you're shopping for a home, you're spending thousands of dollars."
The Daily Press of Newport News, Va., is a Tribune Publishing Newspaper.