HO CHI MINH OPEN UNIVERSITY

Financial Market

Mortgage Options
GROUP 1- DH22AC03C

COMPARE MORTGAGE OPTIONS AND MAKE THE BEST

CHOICE FOR YOU!!
Contents
I. INTRODUCTION..............................................................................................3
II. TARGET CUSTOMER:....................................................................................3
III. MORTGAGE TYPES:...................................................................................3
1. Fixed-Rate Mortgage:.......................................................................................3
2. Adjustable-Rate Mortgage (ARM):..................................................................3
3. Hybrid Mortgage:.............................................................................................3
4. Short-Term Mortgage:......................................................................................3
5. Long-Term Mortgage:......................................................................................4
IV. MORTGAGE OPTIONS:..............................................................................4
a) Option 1: $100,000 home mortgage (maturity 15 years)..............................4
a) Option 2: $100,000 home mortgage (maturity 30 years)..............................5
V. CONCLUSION...................................................................................................5
 I. INTRODUCTION
As a financial advisor, my goal is to help my clients make informed decisions about their
mortgage options. Mortgages are a long-term commitment, and it's important that my clients
understand the benefits and drawbacks of different interest rates and maturities.

II. TARGET CUSTOMER:

For this report, I will be targeting first-time homebuyers who are looking to purchase a property
and want to understand their mortgage options.

III. MORTGAGE TYPES:

1. Fixed-Rate Mortgage:

A fixed-rate mortgage is a popular choice for many homebuyers. With a fixed-rate mortgage, the
interest rate stays the same for the entire term of the loan, which is typically 15 or 30 years. This
option provides stability and predictability, making it easier to budget for monthly mortgage
payments. However, the interest rate on a fixed-rate mortgage is typically higher than an
adjustable-rate mortgage.

2. Adjustable-Rate Mortgage (ARM):

An adjustable-rate mortgage has an interest rate that can change periodically, typically every 5 or
10 years. The interest rate on an ARM is typically lower than a fixed-rate mortgage, which can
provide lower monthly payments in the beginning. However, the interest rate can increase over
time, which can lead to higher monthly payments.

3. Hybrid Mortgage:

A hybrid mortgage is a combination of a fixed-rate mortgage and an adjustable-rate mortgage.

The interest rate on a hybrid mortgage is fixed for a certain period, typically 5 or 10 years, and
then becomes adjustable. This option provides the stability of a fixed-rate mortgage in the
beginning and the potential for lower monthly payments later on.

4. Short-Term Mortgage:
A short-term mortgage has a shorter term, typically 10 or 15 years. This option typically has a
lower interest rate than a longer-term mortgage, which can save money on interest payments over
time. However, the monthly payments will be higher since the loan will be paid off in a shorter
amount of time.

5. Long-Term Mortgage:

A long-term mortgage has a longer term, typically 30 years. This option typically has a higher
interest rate than a shorter-term mortgage, but the monthly payments will be lower since the loan
is spread out over a longer period of time. However, the total interest paid over the life of the
loan will be higher.

Benefits and Drawbacks:

Each mortgage option has its own benefits and drawbacks. A fixed-rate mortgage provides
stability and predictability, but has a higher interest rate. An adjustable-rate mortgage has a lower
interest rate, but the interest rate can increase over time. A hybrid mortgage provides stability in
the beginning and the potential for lower monthly payments later on. A short-term mortgage
saves money on interest payments over time, but has higher monthly payments. A long-term
mortgage has lower monthly payments, but the total interest paid over the life of the loan will be
higher.

IV. MORTGAGE OPTIONS:

a) Option 1: $100,000 home mortgage (maturity 15 years)
Benefits:
1. Lower Total Interest: With an interest rate of 5.00%, the total interest paid over the life
of the loan is $35,105.42. This is significantly lower compared to Option 2.
2. Shorter Loan Term: The loan will be fully paid off in 15 years, which means your client
will be debt-free sooner.
3. Years Saved Off Original Loan Term: The optional extra payments and the relatively
lower interest rate allowed client to pay off the loan 2.33 years earlier than the scheduled
term.
Drawbacks:
 1. Higher Monthly Payments: Since the loan is paid off in a shorter period, the monthly
payments will be higher. This might strain client monthly budget compared to Option 2.

a) Option 2: $100,000 home mortgage (maturity 30 years)

Benefits:
1. Lower Monthly Payments: With a longer maturity of 30 years and a lower interest rate
of 7.00%, the monthly payment is $665.30. This might be more manageable for client
monthly budget compared to Option 1.
2. Flexibility: The lower mandatory monthly payments allow client to have more financial
flexibility.
Drawbacks:
1. Higher Total Interest: The total interest paid over the life of the loan is $89,001.76,
which is significantly higher compared to Option 1.
2. Longer Loan Term: Client will be making mortgage payments for a longer duration,
which might not be ideal if they want to be debt-free sooner.

=>Recommendation: Option 1 is an attractive choice if client can comfortably manage the

higher monthly payments. It allows them to save a substantial amount on interest and be debt-free
in a shorter time. Option 2 provides more financial flexibility due to lower monthly payments.
However, client will end up paying a much higher amount in interest over the extended loan
term.
Given the data and analysis, it appears that Option 1, the $100,000 Home Mortgage with a
maturity of 15 years and an interest rate of 5.00%, would be the more advantageous choice for
client. While the monthly payments will be higher, they will save significantly on total interest
payments and be mortgage-free 2.33 years earlier than the scheduled term.
1. Total interest: 5.00% for interest rate of 15years, 7.00% for 30years, so 15 years have lower
total interest
2. Loan term: 15 years is shorter than 30 years so that customer can fully paid much sooner
3. Years saved off original loan term: 2.33 years for 15 years and 9.33 years for 30 years so one
is you can fully paid off in 13 years and another one is 21 years
4. Monthly payments: for 15 years you have to paid $790.79 and 30 years is $665.30

V. CONCLUSION
Overall, for $100.000 home mortgage you should choose paying in 15 years because you can
fully paid off in shorter time and also have lower total interest and you will be debt-free sooner.