What do today's homebuyers need to know when choosing a mortgage?

Shop around for a mortgage!

Your persistence can save you thousands of dollars a year.

Fewer buyers are out there looking for a home because they can't afford higher mortgage rates. And lenders are struggling with business, which works in your favour.

Mortgage rates and fees can vary greatly between lenders and lenders may be more willing to compete for your business.

If you have a high credit score, are making a large payment, or are a customer of a bank asking for a lower rate or fee waiver, see if you can find a better deal elsewhere.

Adjustable rate mortgages, or ARMs, have gotten some bad reviews over the years because the interest rates on the loans are constantly changing. However, borrowers on a tight budget can save some money with these loans - at least initially.

The most common is the 5/1 ARM, although borrowers can also opt for a 7 or 10 year ARM.

You will usually get a lower mortgage rate for the first few years of the loan, and ARMs are now very popular due to the higher interest rates.

With a 5/1 ARM, the mortgage rate is fixed for the first five years and then adjusted annually based on the current rate.

This is a risk and makes it difficult to calculate your future outgoings.

If the interest rate is higher, then the borrower's monthly housing payment will increase in that year until the rate readjusts. This can really stretch a budget very unexpectedly.

However, if the interest rate is lower, then your payments will be lower and you may save money.

You could get a great deal or be financially hurt - depending on the direction of change in mortgage rates.

There is generally a cap on how much the interest rate can increase in a year and how much it can increase over the life of the loan.

You can also switch your loan to a 30-year fixed rate loan, which could be attractive if interest rates fall.

The problem is that refinancing isn't free. You usually have to pay between 2% and 6% of the loan amount, which is usually thousands of dollars in total.

Interest-only loans are becoming more popular as buyers look for ways to save money.

For the first three, five or 10 years of a typical interest-only loan, the borrower pays - you guessed it - only the interest on the loan.

They then pay off the balance of the loan over a period of 20 or even 30 years, which is a type of ARM structure.

Because you pay only interest at the start, mortgage rates tend to be high, while monthly payments are usually lower.

However, once the interest-only period is over, the monthly payment usually rises significantly, even doubling or more.

These loans are usually best suited to the super-rich who are buying $20 million homes, investors who plan to flip properties, or doctors and other professionals who may not have a large down payment but fully expect their income to increase.

Everyday buyers who plan to live primarily in these homes rarely use these loans.

Mortgage rates on these loans are often high, making it more difficult for many borrowers to qualify for these loans.

They usually require a higher down payment. Also, because you are only paying interest for the first ten years, you will not build equity in your home unless it appreciates in value.

Therefore, if the value of your home drops, you may find yourself underwater on your mortgage.

Home buyers who are willing to stick with a fixed rate mortgage can lower their mortgage rate by buying points.

This isn't cheap, but those who have the cash can often save themselves thousands of dollars over the life of their loan.

Borrowers can usually buy points in 0.25% increments, which typically costs around 1% of the full mortgage amount.

This means you would typically pay $4,000 on a $400,000 mortgage to bring your interest rate down by 0.25%.

Before you spend money on points, consider how long you plan to stay in your home. If you plan to live out the rest of your life in your home and have extra cash, this may be a good option. If you don't plan to stay there for long, this may not make financial sense.

Just a few months ago, buyers gave up inspections in order to buy a home with the promise of naming their first child after the seller.

Today, more and more buyers are asking sellers and builders to lower their home prices, and they are getting that request.

The most popular is the 2-1 buyout method, which temporarily reduces the borrower's mortgage rate.

In the first year your mortgage rate is 2 percentage points lower than the current rate and in the second year it is 1 percentage point lower. It then reverts to the interest rate at the time you took out the loan.

If the current rate is 6.5%, then your rate is 4.5% for the first year, 5.5% for the second year and 6.5% for the rest of the loan.

Many sellers and builders are desperate to get the deal done and they don't want to drop the price. So they are willing to buy down your interest rate. Just make sure that you can afford your monthly mortgage payments once the buy-in period is over.

If you qualify for a loan from the US Department of Veterans Affairs, this is probably the cheapest mortgage you can find.

Fixed rate or adjustable rate loans do not require a down payment or private mortgage insurance.

They also usually offer cheaper closing costs and lower mortgage rates than fixed rate and other loans.

The problem is that these mortgages are only available to veterans, active duty military personnel and their survivors.