If you're a first-time home buyer or are looking to lower you mortgage payment substantially, there are now several options to choose from. However, you need to understand that these gimmicky loans could cost you a lot more later.

The first of these gimmicky loans is an adjustable rate mortgage (ARM) with negative amortization. Negative amortization is a fancy way of saying that your monthly mortgage payments aren't enough to cover the monthly interest owed. You get a significantly lower monthly payment but the interest you don't pay is tacked on to the principle owed.

If your home continues to increase in value, you'll be okay because even though the principle owed is increasing each year, so is your equity. On the other hand, if the value of you home stays the same or decreases, you can end up owing more than your home is worth making you upside down.

Rising payments

The second problem with an ARM with negative amortization is that even if the mortgage rates don't change, your monthly payments will most likely rise as your lender adjusts rates to recapture the lost interest. So, what you're paying today may be very different from what you're paying five or ten years from now.

The second type of gimmicky loan is the interest-only mortgage. While it also offers a lower monthly payment, it shares the same down side as the ARM with negative amortization that the value of your home may not increase fast enough to keep up with the principle owed.

The refinancing problem

The final problem with these gimmicky loans is that they may be hard to refinance during their first three years because there may be stiff fees or pre-payment penalties involved.

These gimmicky loans can look very attractive. But unless you have good reason to believe that home prices in your area are going to appreciate greatly or you are thinking of selling in less than three years, these loans may not be as good a value as you think.