As the housing market continues to struggle with high inventory and a lack of demand, homebuyers appear unprepared to take out a mortgage, answering basic questions about mortgage information wrong 46 percent of the time, according to a Zillow Mortgage Marketplace survey. Approximately 44 percent admitted they are not confident in their knowledge of mortgages or the mortgage process. Zillow Mortgage Marketplace, with Ipsos, surveyed prospective homebuyers, asking them to gauge their own knowledge of mortgages, and asking basic questions about mortgage facts. Fifty-seven percent of prospective homebuyers who were polled by Zillow do not understand how adjustable-rate mortgages (ARMs) work. When asked if interest rates on 5/1 ARMs always reset higher after five years, the majority of homebuyers answered yes. In fact, the interest rate will adjust to the prevailing rate after five years, even if rates have declined. Currently, many borrowers whose ARMs have recently reset have lower interest rates than they did when they took out the loan. Thirty-four percent of the respondents who are prospective homebuyers do not understand that lender fees are negotiable and that they vary by lender. They believe lenders are required by law to charge the same fees for credit reports and appraisals, when in fact home buyers can save money by shopping for the lowest fees. "Most people wouldn't jump out of a plane if they didn't know how to use a parachute, yet each year many buyers commit to the largest loan they will take out in their lifetimes without understanding essential information about mortgages," said Zillow Mortgage Marketplace Director Erin Lantz. "By simply spending a few hours researching how a mortgage works, and by shopping around for the most competitive rates and fees, buyers can save a lot of money." The survey found: ►Forty-five percent of polled prospective homebuyers believe that they should always buy mortgage discount points when obtaining a mortgage. However, because mortgage discount points are simply prepaid interest, the decision should depend on how long you intend to own the home. In some cases, you may not plan to remain in the house for long enough to break even after buying points. ►Fifty-five percent of prospective homebuyers in the study do not understand that mortgage rates vary throughout the day. In reality, mortgage rates can change rapidly, similar to how stock prices can change throughout the day. To get the optimum rate, it is important to monitor rates and shop around. ►Thirty-seven percent of prospective homebuyers who were polled believe that "pre-qualifying" for a loan means they have secured financing. In fact, "pre-qualification" is used to describe the earliest step in the process when a lender approximates how much you can afford, but does not run your credit or request any sort of documentation to verify the information you provide. Although there is not a reliable industry standard definition of pre-qualification, it is not until a lender has approved your loan application without conditions that you can rest assured that the lender has committed to financing your loan. ►Forty-two percent of the polled prospective homebuyers do not understand that Federal Housing Administration (FHA) loans are available to all buyers. Instead, they believe only first-time homebuyers qualify. FHA loans can cost less for many buyers, including repeat buyers with low to average credit scores and with downpayments of less than 20 percent.