Mortgage Interest Rates

What is the best type of mortgage to secure – Adjustable or fixed rate? Or perhaps, the ideal option is a hybrid of both fixed and adjustable? What is the optimum mortgage length? The correct answer to these important mortgage selection questions is simply “It depends!”

Selecting the right mortgage for your needs is a highly individualized matter. The purchaser’s focus should not rest on finding the perfect mortgage for there are pros and cons to each type. Rather, the priority should be on finding the right “fit” for the mortgage purchaser based on his or her unique financial situation and life goals. One size does not fit all.

The three basic considerations that all purchasers must think about have to do with mortgage rates, i.e., what’s the lowest rate that you can qualify for, affordability, i.e., what monthly mortgage amount can you comfortably handle, considering all financial obligations, and mortgage length, i.e, how does the payoff date support or detract from saving for other important life goals, such as retirement?

As for mortgage rate and length, according to expert Jack Guttentage, author of "The Mortgage Encyclopedia" and professor emeritus of finance at the Wharton School of Business School, the rule of thumb is “The shorter the term, the lower the interest rate. Therefore, the shortest term the consumer can afford is often the best overall deal.”

Today mortgages can be obtained in a variety of lengths. Traditional 15-and 30-year mortgages remain the most common. While between the two 15-year mortgages offer the best value, 30–year mortgages are the most popular. This is because 30-year mortgages are still reasonably competitive in terms of rates, while affording the purchaser greater flexibility in monthly cash flow.

It is also important to note that today about 35 percent of mortgages fall into a category called hybrid mortgages. These hybrid mortgages assure mortgage purchasers a certain number of years at a fixed rate and the remaining years at an adjustable rate.

Lastly, when deciding what length mortgage to obtain, mortgage purchasers must consider their overall life plans and financial goals. What is the age of the purchaser? Is retirement or a change in lifestyle that will significantly reduce income on the near horizon? Are there minor children yet to attend college? Are other savings and retirement instruments in place and on track in terms of their funding?

As the mortgage purchase decision is key decision in an overall financial plan, due diligence must be applied to assure that the best decisions are made at every step of the way. Mortgage controllers can help simply many factors in the mortgage purchasers purchase process.

Note: BankRate.com contributed to this article.