NEW YORK (CNN/Money) - The U.S. housing market shows no signs of slowing down as applications for new mortgages jumped 25.6 percent last week, and refinancing activity soared nearly 40 percent, says the Mortgage Bankers Association.

Now, while you probably have heard of fixed rate mortgages and adjustables, you may not be familiar with several other options on the scene.

Innovative mortgages are constantly popping up. Remember portable mortgages, which were announced last summer? Those turned out to be not much of a hit. Nonetheless, bankers are coming up with all kinds of new products to help you afford ever-more expensive real estate.

But buyer beware. Some of these options are more trouble than they're worth. We review a handful in today's five tips.

Piggyback mortgages are designed to get you out of paying mortgage insurance every month. Mortgage insurance is required when borrowers take out a loan that exceeds 80 percent of the purchase price of the home.

For example, if you buy a $100,000 home and borrow more than $80,000 you'll need mortgage insurance. The homeowner is essentially paying for insurance coverage for the lender in case the borrower defaults on the loan. However, mortgage insurance is not deductible. Piggyback loans combine a standard first mortgage with a home-equity line of credit.

CNNfn's Gerri Willis explains different mortgage options for home-loan shoppers. Play video (Real or Windows Media)

In other words, these are two separate loans. The borrower takes out the 80 percent first mortgage plus a second loan for the rest he/she needs to borrow. Consumers should know that the interest you'll be charged for the second loan will be at a slightly higher rate, but you can deduct it.

A piggyback mortgage can also help you avoid the higher interest rates associated with a jumbo mortgage. Currently, jumbo loans are any mortgage above $333,700. Therefore, for someone who needs to borrow $400,000, he/she can take out a mortgage for $325,000 and a second loan for $75,000. Jumbo loan interest rates are typically an eighth to a quarter of a percent higher than other rates.

Among the risks to piggybacking mortgages: it can limit your borrowing capabilities. Taking out both a first and second loan will make it very difficult for homebuyers to take out additional loans using their homes as equity. And if short-term interest rates climb, borrowers with lines of credit could face higher payments, if the loan is adjustable.

Interest-only mortgages have been a hot product for homebuyers in markets where prices have skyrocketed because they allow you to pay less each month in mortgage costs, at least at the beginning of the loan.

The way they work is that for a set period of time you pay only the interest portion of your monthly payment. At the end of that period, however, your monthly mortgage payments are adjusted higher to reflect the entire amount of your loan that is due.

In other words, if you were paying interest only on your $250,000 mortgage for the first five years of your 30-year loan, then at the end of that period your mortgage payment would reset to reflect the costs of a $250,000 mortgage paid over 25 years.

That bump in costs is one of the downsides of an interest-only mortgage, but probably more important is the fact that the interest only delays your buildup of equity in your home. This could become a problem if you were forced to sell your home in a declining market and found that you actually owed more on your home than it was worth.

Holden Lewis of Bankrate.com says interest-only mortgages are marketed for those who don't expect to live in their home for very long. They are also for those who expect their income to rise fairly quickly. For example, a medical student right out of school.

At the end of his/her stay in the home, the homeowner should be able to pay off the loan balance, refinance or get another home. Lewis says the problem is that there are lots of people getting I-O mortgages who don't really fit into this category, but this is the only way they can buy a particular house they want. They are essentially buying too much house for their income.

And in, say, five years, they will owe exactly the same amount as before and found they really haven't paid down anything.

Fixer-upper mortgages are based on the Fannie Mae Homestyle Program. You may also see them as FHA loans. FHA stands for the Federal Housing Administration. Financing is based on the purchase price of the home plus the costs of repairs.

This is a good option if you are buying an older home that needs updating. Or maybe you have plans right from the beginning about what you want to do to the house.

This way you'll get a loan that will cover both the house you are buying plus the renovations. Keep in mind the interest rates could be a bit higher -- by about an eighth of a percent. Plus, there could be additional costs associated with appraisals.

Fannie Mae does not specify which improvements a borrower may or may not finance. The money can be used for cosmetic reasons, such as painting or carpeting or for more involved construction. The key is you must show up at the lender with the plans already in place. The lender ends up having more involvement throughout the entire renovation project.

In fact, they typically will bring in their own appraisers to sign off on the project. The homeowner can pick the contractor to do the work. However, the lender must approve it.

When taking on a project with a fixer-upper mortgage, the homeowner and lender will come up with several instruction points along the way when the lender will come in and make sure the work is done by specified dates. While working so closely with a lender might be a pain, the good news is that you end up with a single permanent loan for both your home and your renovation.

While this sounds great, it can also end up costing you. This loan lets borrowers skip up to two mortgage payments a year and up to 10 payments over the life of the loan.

Countrywide Home Loans newest loan is called PaymentPower Mortgage. The thing to remember here is that flexibility will cost you money. According to Keith Gumbinger of HSH Associates, fees typically run a couple of hundred bucks each time you miss a loan payment. Plus, your missed payments are simply added to your original loan amount.

After each skipped month, a new monthly payment will be calculated based on the remaining mortgage term and the original interest rate. As a result, the new monthly payment will be slightly higher.

Pete Bonnikson of E-loan says by choosing the miss-a-payment option the principal increases by the amount of what is not paid. Also, borrowers must make the first three monthly payments of their loan before taking advantage of the skipped payment option.

Like a lot of the new loan innovations, the miss-a-payment loan variation is probably only appropriate for a small group of consumers such as people whose income is seasonal.

Remember that getting a mortgage is just like buying any consumer product. You'll want to shop around. Too many home buyers don't spend the time they should, and end up with a mortgage that's more than what they need, with too many options or unexpected fees.

Keep in mind that simpler can be better. Gumbinger says first-time mortgage shoppers should begin the process of finding the right mortgage by deciding how much of your loan should carry a fixed rate.

Are you only going to be in your home for three years? Or are you setting up household for the foreseeable future? Once you've decided whether you're going for a fixed rate or adjustable, you'll also want to know how much money you're ready to put down, as well as how many points you're willing to pay to close the deal. A point equals one percent of a mortgage loan. Some lenders charge points to originate loans.

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Now that you've got the basics down, next start shopping rates and fees. One rule of thumb, according to Gumbinger: the best fixed-rate pricing often comes from mortgage bankers and mortgage brokers, while the best adjustable deals often come from thrifts, banks and credit unions.

Thoroughly examine the good faith estimate of closing costs from your banker to understand the fees you'll be asked to pay. If you are asked to pay a document preparation fee, underwriting fee, credit appraisal fee AND a processing fee? You're probably being overcharged.

Gerri Willis is the personal finance editor for CNN Business News. Willis also is co-host of CNNfn's The FlipSide, weekdays from 11 a.m. to 12:30 p.m. (ET). E-mail comments to 5tips@cnnfn.com.