Mortgages are a bit like the old-fashioned seesaw: Put your weight on security, and the interest rate goes up. Or opt for the low rate, and the uncertainty rises. It is possible to get close to balance, but it's not easy.

Understanding the different types of mortgages is a critical first step to getting a home loan. The two primary types of mortgages are Fixed-rate and Adjustable-Rate Mortgages (ARMs). There are many variations within those two, and in general, it comes down to your personal needs, attitude, and especially how long you plan to be in the house.

Fixed-rate mortgages are easiest to grasp: They generally have repayment terms of 15, 20, or 30 years. The interest rate and the monthly payment do not change during the life of the loan, though the amount of principal and interest applied to the payment does vary as the loan matures. Homeowners like this kind of loan because they always know how to budget house payments, and it also provides them with a hedge against inflation.

At the beginning of the loan, most of the monthly payment goes toward interest, rather than principal. As the loan ages, more of the payment goes to principal until the loan is paid off. The amount of total interest paid depends on the length of the loan; a shorter loan, say for 15 years, will have lower interest than a loan that stretches over a longer period. However, payments on a 15-year loan will be higher than a longer term loan simply because the principal has to be paid off in a shorter amount of time. A 30-year mortgage is more popular because payments are lower due to the longer term of the loan.

The downside of the fixed-rate mortgage is that borrowers might pay a higher interest rate, and if interest rates drop, they will want to refinance — an expensive option. If they are planning to stay in the house for 15-20 years, though, this is a conservative way to go. But if they are thinking of moving in five years or so, the borrower might end up paying more in interest than if he had a more reasonable ARM.

Adjustable-Rate Mortgages (ARMs), also known as variable-rate loans, usually offer lower rates at the beginning of a loan, but then the rate fluctuates over the life of the loan based on market conditions. (The loan agreement generally includes maximum and minimum rates, so there are some set parameters to protect the borrower.) The initial interest rate is typically set below market rate for a fixed-rate loan, but the rate will ultimately increase and could total more than that of the fixed-rate mortgage.

ARMs have a fixed rate for a period of time, and then the rate is adjusted according to the index a particular loan is based on. Borrowers pay more to get a longer fixed period initially; the shorter the period, the lower the rate. After that, adjustments are made on an agreed-upon frequency schedule.

Borrowers with an ARM benefit in the event interest rates fall; their monthly payments will fall right along with them. But the converse is also true: If the rates rise, so do the payments. This uncertainty drives some people crazy, while others are willing to ride the roller coaster.

First-time home buyers can also qualify for a higher loan with an ARM because of the lower interest, but they need to consider what happens when the rate rises. They are betting that they'll save enough initially to offset a future rate increase.

If a home buyer plans to stay in the house a short time and the house is appreciating in value, they could end up paying less than they would with a higher-rate Fixed Mortgage.

There are many kinds of ARMs, but a popular one in the recent past as home values jumped out of reach of potential buyers is the option ARM. Option ARMs are adjustable-rate mortgages that allow the borrower to pay only a minimum required payment monthly, sometimes so small that it doesn't cover the interest, let alone the principal. Borrowers can choose how much they want to pay over the minimum, but often pay just that, which means they are actually adding to their debt with every payment. They end up owing more on a house with every payment!

At some period after the loan begins, the required payments increase so that the loan can be paid off by the end of the term. Since the loan has increased — and often the interest rate has risen — the payments are sometimes disastrously high.

It is extremely important that borrowers of any type of ARM understand the details and financial implications of their mortgage to avoid any surprise during the life of the loan.

Need to remodel but no money? Or need a loan to send Johnny to college? You can tap into the equity you have in your home (the amount your house is worth minus what you owe on it) via a Home Equity Line of Credit, or Home Equity Loan.

Home Equity Loans are when a lender gives you a set amount of money and you pay it back over a fixed payment schedule. Typically these loans have fixed interest rates. This is a better option for someone who wants to lock in a fixed interest rate, either because they think interest rates are going to increase or because they like the certainty of knowing what their payment schedule will be.

A home equity loan also is a better option than a home equity line if you know exactly how much money you need to borrow and when you want to borrow it.

You can shop anonymously for mortgage rates for a home equity loan or line of credit on Zillow Mortgage Marketplace. Just submit a loan request and you will receive custom quotes instantly from a marketplace filled with thousands of lenders. The process is free, easy and best of all, you are anonymous.

Here's the scenario: You have lived in your home for many years and it is worth more now than it was when you bought it. You are finally retiring, but you'd like to be able to eat more than dog food and that isn't looking likely. So you borrow against your equity, which is the amount you have invested in your home less the amount you owe on it, and pay your bills out of the new loan while you continue to live in your house.

Many Americans are opting for this type of mortgage so they can stay in their homes in their retirement years.

Think of it as the opposite — or reverse! — of more traditional loans: With other types of mortgages, the equity in your home increases as you make monthly payments, and your debt decreases. But with reverse mortgages, a lender gives you cash and the payments are basically taken out of the value of your home. As the debt increases, the equity in your home decreases. When the loan term is up, the borrower has to pay back the loan, plus interest (usually by selling the house).

The loan is limited by the value of the house; a homeowner cannot borrow more than the house is worth, and a lender can never try to get money to cover the loan anywhere other than from the home equity.

Borrowers generally wish to receive the payments monthly, or in a lump sum and then a line of credit for further payments.

Homeowners 62 or older are the only ones eligible for a reverse mortgage. Since the loan is based on equity in a home, and since there are no monthly payments to make, the homeowner does not need to have an income to qualify. However, the borrower still has to pay home maintenance, taxes, and insurance costs. Most lenders will not lend on mobile homes or apartment co-ops.

This is one time when age can be an advantage: The older a borrower is, the higher the amount they can most likely borrow.

While reverse mortgages can vary, the most popular is a Home Equity Conversion Mortgage (HECM) which is backed by the federal government. Many lenders have software that allows you to compare a HECM with a loan from a private lender.

• A Home Equity Conversion Mortgage is the only reverse mortgage program backed by the federal government via the Federal Housing Administration, which limits loan costs and oversees the lender. Because the loan is insured, the borrower is guaranteed to receive the amount promised regardless of whether the lender defaults, or the home decreases in value. These loans are flexible in terms of what you can spend the money on and the amount you can borrow, but they can be expensive. They are by far the most popular reverse mortgages.
• Low-income reverse mortgages are available through state and local governments, but only for specific purposes. Note that all loans are not necessarily available in all locations.
  • Deferred Payment Loans (DPL) are low in cost, but limited in scope. For low-income borrowers, they are to be used specifically for repairing your home.
  • Property Tax Deferral loans (PTDL) are to be used only to pay property taxes. As with all reverse mortgages, you don't have to repay the loan as long as you stay in the house.
• A Proprietary Reverse Mortgage from a private lender can often get you more money, but is the most expensive loan. It is generally used by homeowners in a very high-value home. The most common is the Fannie Mae Home Keeper Mortgage.

With a traditional mortgage, it's easy to itemize the costs in terms of interest rate and service fees. But with reverse mortgages, the cost is dependent on such things as what happens to the value of the house during the term of the loan, and the cash advances received. To give borrowers some idea, lenders are required to disclose the Total Annual Loan Cost (TALC) which does not answer the question definitively, but helps. Borrowers can use the TALC from different lenders to compare mortgages.

One thing stays true: Start-up costs are high, so the longer you stay in the home, the less expensive the loan. You can choose monthly or yearly interest rates, each tied to the Fed Treasury Bill. The best way to estimate the cost is to enter your specific information into a Reverse Mortgage calculator.

In general, fees include:

• Origination fee: A fee charged by a lender that is 2% of the home's value, or 2% of a county's limit placed on the value of a house specifically for determining a reverse mortgage amount. The amount is negotiable.
• Closing costs: Service fees covering appraisal, surveys, title search, etc. Varies by the value of the house.
• Mortgage Insurance Premium: Guarantees your loan and costs 2% of the value of your home, or of a county's limit placed on the value of a home, and 0.5% added to the interest rate as the loan increases. This can be high.
• Servicing fee: Administrative fee to the lender, about $35 a month, negotiable.
• Interest rate: Usually adjustable, based on the 1-year Treasury rate, plus a margin. Capped at 2% per year, or 5% over the life of the loan.

Reverse Mortgages are complex and hard to understand, therefore may include hidden fees and high overall costs. The AARP site has an entire section devoted to explaining these loans.

Borrowers need to be especially careful on Reverse Mortgages' downside:

• Cheaper, uninsured reverse mortgages mean the balance is due at the end of the term and the homeowner may have to sell the house to pay off the loan.
• They are expensive; the loan can end up costing the homeowner more than he borrowed.
• A borrower cannot predict the true cost because it is based on how long they live or stay in the house.
• The mortgage could affect government benefits for low-income borrowers.
• They can invite scams aimed at seniors, including "estate planning" fees.

Lenders specializing in reverse mortgages are generally members of the National Reverse Mortgage Lenders Association (NRMLA). (Note: Zillow Mortgage Marketplace does not target Reverse Mortgages as part of its product offering.)

Whether it's called a loan modification, mortgage modification, restructuring, or workout plan, it's when a borrower who is facing great financial hardship, having difficulty making their mortgage payments and is facing foreclosure, works with their lender to change the terms of their mortgage loan to make it affordable. The workout plan varies by lender, but changes could include temporary or permanent changes to the mortgage rate, term and monthly payment of the loan, the past due amount could be rolled into the loan, and the new balance re-amortized.

Under the Homeowner Affordability and Stability Plan President Barack Obama announced on Feb. 18, 2009, the goal of Obama's "Make Home Affordable" loan modification plan is to reduce the amount struggling homeowners owe per month to sustainable levels. According to plan details:

• The lender would first be responsible for bringing down interest rates so that the borrowers monthly mortgage payment is no more than 38 percent of his or her income.
• Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent.
• Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.
• Borrowers will be put on a trial modification at the new interest rate and payment for three months. If they make all their payments on time, the modification will be implemented at the new rate and be fixed for five years.

Under Obama's plan, loan modifications will be standardized, with uniform loan modification guidelines used by Fannie and Freddie Mac, and then they will be implemented throughout the entire mortgage industry.

To qualify, you must:

• Have originated your mortgage before Jan. 1, 2009.
• Be an owner-occupant.
• Have an unpaid balance that is equal to or less than $729,750 (for a single-family home).
• Have trouble paying your mortgage due to financial hardship. That could be because you have had an increase in your mortgage payments, or because your income was reduced or you suffered a hardship (like medical problems) that increased your bills, or, you can show that you soon will be unable to make your payments. You will be required to enter an affidavit of financial hardship.
• Your monthly mortgage payment must also be more than 31% of your gross (pre-tax) monthly income.

According to the Department of Treasury: Anyone with high combined mortgage debt compared to income or who is underwater (i.e., has a combined mortgage balance higher than the current market value of his house) may be eligible for a loan modification. This initiative will also include borrowers who show other indications of being at risk of default. New borrowers will be accepted until Dec. 31, 2012.

Speculators or those who bought homes for investment purposes -- are not eligible. All homes must be owner/occupied. Also, if you cannot afford the home due to job loss or a complete inability to pay, you will not be eligible. Also, mortgages with amounts above the conforming loan limits would not be eligible.

First, gather this information:

• Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources.
• Your most recent income tax return.
• Information about your assets
• Information about any second mortgage on the house.
• Account balances and minimum monthly payments due on all of your credit cards.
• Account balances and monthly payments on all your other debts such as student loans and car loans.
• A letter describing the circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.).

Second, call your mortgage servicer and ask to be considered for a "Home Affordable Modification." The number is on your monthly mortgage bill or coupon book. Honestly state your situation. They will assess your financial state through phone calls and paperwork to determine whether you qualify for a loan modification. Keep copious, detailed notes on who you speak with and details of the conversations so you have documentation down the road if you are faced with foreclosure.

Third, depending on the direness of your financial difficulties, its always good to hire legal counsel. Get a referral from your local state bar association.

Fourth, call a local HUD-Approved Housing Counseling Agency for guidance.

Lastly, you can find loan modification reps through Zillow Professional Directory, but you must do your due diligence to make sure these people are legit.

A loan modification is usually a win-win situation: the lenders get their money in a reworked fashion and borrowers get a new chance to support their mortgage payments at a reduced cost.

Also, under the Obama plan, there are incentives for both lender and borrower. According to the Treasury:

• Pay for Success Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive pay for success fees awarded monthly as long as the borrower stays current on the loan of up to $1,000 each year for three years.
• Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
• Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
• Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund to be created by the Treasury Department at a size of up to $10 billion will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.

Also, banks would rather have you stay in your home than risk foreclosure since they stand to lose more money through foreclosure. Think about it: a bank would need to make any repairs to the home, pay real estate agents to list it, and then perhaps list it at a discounted price. And, if the real estate market is slow, the price could be further reduced.

On March 4, 2009, guidelines were released under President Barack Obama's Making Home Affordable initiative, which is designed to help up to 9 million homeowners stay in their homes through refinanced mortgages or loan modifications.

To qualify, you must:

• Owe between 80-105% of your mortgage. An analysis of Zillow Q4 Real Estate Market Reports shows that 26% of mortgage holders, or 14.8 million homeowners, currently qualify to refinance under these specifications. One quarter (24.6%) of homeowners with mortgages (14 million) do not qualify because they are underwater and owe more than 105% of their home's value. This is especially true in hard-hit areas of California or Florida, where home values have fallen 40% or more since the peak.
• Have a loan backed by Fannie Mae or Freddie Mac. Approximately 60% of single-family loans are backed by Fannie or Freddie, but a homeowner may not know this about their own loan. If you don't know, call Fannie at 1-800-7FANNIE and Freddie at 1-800-FREDDIE or submit online forms with Fannie and Freddie.
• Have a conforming loan. That means a loan under $417,000 in many areas or up to $625,500 in high-cost areas like San Francisco, Boston or Washington, DC. Even still, the Zillow Home Value Index (median home value) for the city of San Francisco is $724,244, which says that lots of people have loans higher than the conforming limit. (Note: the conforming loan limit for certain high-cost areas of the U.S. for 2009 mortgage originations is now $729,500.)
• Take this financialstability.gov Q&A to see if you qualify. If you don't think you qualify for a refinance, you might qualify for a loan modification under the plan.

You have an Adjustable Rate Mortgage (ARM) which was doing fine enough that you bragged about it but your loan is going to reset to a higher interest rate amidst market uncertainty and everyone is buzzing about it. Lying awake at night is interfering with your job, so you figure you'd better say goodbye to that low but fluctuating interest rate, and get a nice secure fixed-rate loan before the swing hits the sky.

This is a common scenario these days as interest rates inch up and many homeowners who opted for ARMs in the past 10 years are hoping to switch to a traditional loan.

Switching types of mortgages, as described above, is one reason people refinance, which is simply replacing a current mortgage with another. But there are others.

• Lower your interest, but keep your term: When rates drop you want to take advantage of it and lower your monthly payments, but keep the length of your mortgage.
• Take care of that balloon payment: You opted for a short-term ARM with a balloon payment and the due date is looming, so you have to come up with a longer-term loan.
• Shorten your term: Lower interest rates (or an increase in your income) mean you can pay down your principal faster.
• Credit rating change: Take advantage of an improved credit rating and get out from under that high rate you had to accept when you bought.
• You need cash: In some cases, you can refinance for an amount more than what you still owe on your home. Lenders limit the Loan to Value at no higher than 70 percent for this type of loan.

You can shop anonymously for mortgage rates for a refinance on Zillow Mortgage Marketplace. Just submit a loan request and you will receive custom quotes instantly from a marketplace filled with thousands of lenders. The process is free, easy and best of all, you are anonymous.

• Shop Refinance Loan Quotes
• What is a loan modification

Most of the things fees, appraisals, title insurance that went along with an original mortgage hold true for a refi, which means it can cost a fair amount to change loan types. How quickly you recoup the cost depends partially on how long you are going to keep the mortgage. If you are going to be in your home long enough to recover the costs, and get some benefit from lower interest payments over the life of the loan, then it's a no-brainer. But balancing the cost with the benefits of a new mortgage is critical. Use an online calculator to figure it out.

Be sure to remember that closing costs include another appraisal (no matter how recently you've had one), a new credit report, underwriting fees, title insurance, escrow fee, recording fees, and perhaps other small fees. These costs typically range from $1500-$2000. (Some lenders are willing to waive the closing costs for a higher interest rate loan.)

You can pay points on a refinance loan, same as on an original mortgage, but unlike with the original mortgage, the points are tax deductible over the entire term of the loan rather than just in the first year. Points make sense when rates are on the upswing and you want to get in on the lowest possible rate.

But, except in some cases, points are a fact of life: if you are paying a 1-point fee on a $100,000 refi, you can add $1000 to your closing costs.

You also need to look at your current mortgage to see if there are pre-payment penalties. And what happens to your old mortgage? It's paid off by the new loan, as are any other liens; at the end of the refinance process, ideally you should have only one loan. (If you have more than one mortgage, however, it's possible to refinance just one of the loans if the lender agrees.)

The easy way to figure out if refinancing makes sense is to figure out how long it will take you to pay off the closing costs with the savings you realize with lower monthly payments. If it is longer than the time you plan to stay in the house, then refinancing might be a good option. You have fewer tax breaks with a lower-rate refi, so be sure to ask your lender for a refinance break-even table that will take that into account.

• Shop Refinance Loan Quotes
• What is a Loan Modification

When it comes to looking at mortgage types, ask yourself one giant question: What is your goal? Will you be in this new home when the grandkids come to play, or is this a starter home that you'll trade up in the next five years? The answer to that question will help narrow your mortgage choices.

Staying in the house a lifetime? A fixed rate loan means you have the security of knowing what your payments will be. Moving on? An ARM has lower interest rates and you might sell before they rise. Or you could look at a hybrid ARM that is fixed for, say, five years, then adjusts annually.

You look at rates and points differently depending on the amount of time you will stay in the house. If a lender charges points, and required third parties charge for their services, it increases the cost of the loan. If you sell your home in a few years and have paid points to get a better interest rate, you may not recoup the cost of those fees. And your equity in the house will be minimal, but you are betting the home will appreciate enough to cover the fees, or that the money you save in interest will balance out the additional cost of the loan. In other words, if you rely on moving in a short time, you will be subject to where the market is when that time comes.

If you are choosing an ARM, ask your lender to provide examples of monthly payments before and after any rate adjustment, in the event interest rates increase or decrease. It's a reality check.

It's a bit of a misnomer, since Federal Housing Administration (FHA) loans are not loans at all. What they do is insure loans so that lenders can offer mortgage assistance to people who:

• Have fair or poor credit
• Have a low down payment (must have at least 3.5%)
• Have undergone bankruptcy
• Have been foreclosed on

Essentially, the federal government insures loans for FHA-approved lenders so that lenders reduce their risk of loss if they lend to borrowers who could default on their mortgage payments. The FHA program has been in place since the 1930s to help stimulate the housing market by making loans accessible and affordable. Traditionally, FHA loans have helped military families who return from war, the elderly, handicapped, or lower-income families, but really, anyone can get an FHA loan - they are not just for first-time home buyers.

An FHA loan is the easiest type of real estate mortgage loan to qualify for because it requires a low down payment and you can have less-than-perfect credit. Also, because FHA insures your mortgage, lenders are more willing to provide loans. Another advantage of an FHA loan is it's assumable, which means if you want to sell your home, the buyer can "assume" the loan you have. FHA loans can be used for a home purchase or a refinance.

You can shop anonymously for mortgage rates for an FHA loan on Zillow Mortgage Marketplace. Just submit a loan request and you will receive custom quotes instantly from a marketplace filled with thousands of lenders. The process is free, easy and best of all, you are anonymous.

• Shop FHA Loan Quotes

• Must have steady employment history or worked for same employer for the last two years.
• Must have valid Social Security number, lawful residency in the U.S., and be of legal age to sign a mortgage in your state.
• Must make a minimum down payment of 3.5% on the house and it can be gifted by a family member (conventional financing does not allow gifting).
• Must have a property appraisal from an FHA-approved appraiser.
• Mortgage payment (including principal, interest, property taxes, property insurance) needs to be less than 31% of your gross monthly income.
• Monthly debt (mortgage, credit cards, auto, student loans, etc.) cannot be more than 43% of your monthly income.
• No minimum requirement for credit scores, but past credit performance will be scrutinized. FHA-qualified lenders will use a case-by-case basis to determine an applicants' credit worthiness.
• Must be two years out of bankruptcy, with good credit.
• Must be three years out of foreclosure, with good credit.

You knew there had to be a catch and here it is: Since an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront -or, it can be financed into the mortgage -- and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA-approved appraiser.

• Upfront mortgage insurance premium (MIP) � Appropriately named, this is an upfront monthly premium payment, which means borrowers will pay a premium of 1.75% of the home loan, regardless of their credit score. Example: $300,000 loan x 1.75% = $5,250. This sum can be paid upfront at closing as part of the settlement charges or can be rolled into the mortgage.
• Annual MIP (charged monthly) � Called an annual premium, this is actually a monthly charge that will be figured into your mortgage payment. It is based on a borrower's loan-to-value (LTV) ratio and length of loan. There are two different Annual MIP values: 0.50% and 0.55%. If the LTV is less than or equal to 95 percent, a borrower will pay 0.50%. For LTVs above 95 percent, annual premiums will be .55%. Example (for LTV less than 95%): $300,000 loan x 0.5 = $1,500. Then, divide $1,500 by 12 months = $125. Your monthly premium is $125 per month. In most cases, this cost will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property -- whichever is longer.
• Property needs to meet certain standards � Also, an FHA loan requires that a property meet certain minimum standards at appraisal. If the home you are purchasing does not meet these standards and a seller will not agree to the required repairs, your only option is to pay for the required repairs at closing (to be held in escrow until the repairs are complete).

Important note: Prior to Oct. 1, 2008, premiums were figured using a risk-based calculation, taking into account a borrower's credit score and loan-to-value ratio. However, on Oct. 1, 2008, a one-year moratorium was instituted on this method by the Housing and Economic Recovery Act of 2008. Keep current on the premium costs for FHA loans by visiting the U.S. Department of Housing and Urban Development (HUD).

While the FHA does not have income or location restrictions, there are maximum mortgage limits that vary by state and county.

Due to tighter lending standards on conventional loans, FHA loans are becoming increasingly popular. For more information on FHA loans, visit the U.S. Department of Housing and Urban Development (HUD).

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© Zillow, Inc. 2009. Originally posted