Mortgages galore, but how to choose?

It's getting to the point where some people have to spend more time figuring out all the new mortgages than they spend finding a new home. In the past year or so, lenders have responded to stiffer competition, consumer demand, and tighter lending guidelines with a growing menu of new mortgage products. A year or so ago, for example, the hot new loan was a ``convertible'' that could be switched from an adjustable- to a fixed-rate loan after 13 months.

That's still available, but some lenders have now gone the other way, with fixed-rate loans that can be converted to adjustables after a few years.

Other new loans are aimed specifically at first-time home buyers - including those who might have trouble qualifying for a loan under the tougher guidelines now in effect - while others are aimed at people buying their second, third, or fourth home and don't want a lender prying into their personal finances.

Although these new mortgages do open up many more options and opportunities for home buyers, they also require people to ask more questions, do more homework, and make some guesses about how long they'll live in their new homes.

Perhaps the strongest engine behind these changes is competition. A few years ago, if you wanted a mortgage, you went to the local bank or the local savings-and-loan. Today, those lenders have been joined by bigger mortgage companies, banks and thrifts in the midst of nationwide expansions, financing arms of auto companies like General Motors and Ford, and retailers like Sears, Roebuck & Co.

``Competition is definitely up this year,'' says Tom Marder, a spokesman for the Mortgage Bankers Association of America. ``The market is slower than last year and lenders are trying to create different products to meet the different needs of their customers.''

``As the market has contracted and the number of lenders has increased, they are all fighting to survive somehow,'' says John Sullivan, a loan officer with Pioneer Financial Company in Boston. ``Each of these programs is finding its own niche.''

The new loans are also a response to changing interest rates. Although mortgage rates have not changed much over the last couple of years, there have been some small increases, and even a small jump can push some hopeful home buyers out of the market. So lenders have found new ways to keep funds available.

Before, a simple adjustable-rate mortgage, or ARM, would have done the trick. But the Federal Home Loan Mortgage Corporation, or Freddie Mac, has made that harder. It now says ARM borrowers must be qualified at the maximum second-year rate, which is usually 2 percent over the initial rate. So if the current rate is 8 percent, the buyer must be qualified at 10 percent, or the lender cannot sell the loan to Freddie Mac to raise more money for future loans.

``Before, if someone qualified for a loan at the first-year rate, you'd let it fly,'' says Peter Collins, a mortgage originator at Commonwealth Mortgage Company in Boston. ``But Freddie Mac was worried about people defaulting.''

The ever-creative lenders, however, have found ways to help some customers get around this. They have convertible loans that start out with a fairly low fixed rate, say about 9 percent, and stay there for three to seven years. Known as ``three-ones,'' ``five-ones,'' and ``seven-ones,'' these loans covert to one-year adjustables after three, five, or seven years.

Another recent innovation is the no-documentation or low-documentation loan, also called ``no-docs'' and ``low-docs.''

For buyers who can make down payments of at least 20 to 30 percent, depending on the lender, these loans can be approved without the usual credit checks, job verifications, and - most important for some people - income and tax statements. These are handy for self-employed people who would otherwise face a strict and time-consuming loan approval process.

Plowing through all these new mortgages, as well as the more conventional loans, does call for more homework and time. Buyers should visit at least a few lenders and ask lots of questions and expect detailed answers about how each loan works. If the loan is adjustable, the loan officer should explain how high your monthly payments could go in the ``worst case'' interest rate scenario.

As this search process will show, these loans have many advantages, but they can also carry some unpleasant surprises.