Mortgage lending is mechanical, impersonal and competitive. So hunt for the best loan -- interest rate, points, processing costs and, on adjustable mortgages, the most favorable adjustment features. Don't pay much attention to who's originating the loan or where the lender is. And don't place too much value on your current bank or thrift relationship, either. Odds are your loan will be sold once or twice over its term.

The basics

There are two basic ways mortgage lenders charge you for using their money: through the interest charges you pay each month over the life of the loan, and through points. Compare mortgages by their annual percentage rates (APR), which include the cost of points and other fees.

Lenders market a wide variety of mortgages, but when you get down to it there are only two varieties:

• Fixed-rate mortgages lock in your interest rate for the life of the loan. Your total monthly payment of principal and interest remains constant, but the portion of each payment allocated to principal grows. (See Pros and Cons of Fixed-Rate Loans.)

• Adjustable-rate mortgages (ARMs) generally start lower than their fixed-rate cousins but their interest rates can rise -- or fall -- during the term of the loan. (See All about ARMs.)

What's best for you?

Deciding which mortgage is best requires a close look at your present circumstances, future earnings and financial goals.

Keep your needs in the forefront. Do you intend to stay put for many years? Then getting the best interest rate on a fixed-rate mortgage is probably your best bet. Paying 7.5% rather than 8% on a $100,000, 30-year fixed-rate mortgage will save you $34.55 each month.

On the other hand, say you plan to put the home up for sale in three to five years. Then points and closing costs (and the ability to pay off the mortgage without penalty) are more important than getting the absolute lowest available rate.

For most home buyers, the choices are these:

• Will your down payment be small or large?

• Do you want a long-term or shorter-term loan?

• Do you want a fixed-rate or adjustable-rate mortgage?

• Will you pay points for the lowest-rate mortgage or will you shop for a loan with few or no points and therefore a higher rate?

Next: Pros and Cons of Fixed-Rate Loans