| Interest only mortgage hedge. |
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iadrang
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Cash: $ 0.45
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| Interest only mortgage hedge. |
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Good morning, this is my first posting so please excuse any service transgressions.
I am looking for a way to hedge increases in my mortgage payments. My mortgage is an interest only mortgage that is tied to the 6-month Libor rate.
My thinking is to purchase a Eurodollar put on the theory, right or wrong, that the Libor and Eurodollar move in opposite directions.
Thank you in advance.
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Wed Dec 15, 2004 1:05 pm |
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BlankenshipFP
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Seems like a reasonable method.
Why did you choose an interest only mortgage in this rate climate? What is your timeline for staying in this home? It seems to me that the only direction rates can go is up, in the foreseeable future, so it makes good sense to lock in these low rates.
Jim Blankenship, CFP®, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Wed Dec 15, 2004 3:32 pm |
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xboxundone
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quote:
Originally posted by BlankenshipFP
Seems like a reasonable method.
Why did you choose an interest only mortgage in this rate climate? What is your timeline for staying in this home? It seems to me that the only direction rates can go is up, in the foreseeable future, so it makes good sense to lock in these low rates.
I would agree completely lock in while these rates are low as they are going to stay low forever 
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Wed Dec 15, 2004 3:39 pm |
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Andrew
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When I sold my duplex recently, the buyer used an interest-only mortgage. He was very savvy in general, and was certainly convinced that this would be the best way to go. He did get a really low rate, and he'll have more free cash because of the lower payment.
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Wed Dec 15, 2004 4:17 pm |
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iadrang
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| Interest Only Mortgage |
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Thank you one and all for your replies.
I went with the interest only because I only plan to be here for about 5 years, I apply additional funds each payment that are directly applied to the principal. I like the flexibility this mortagage offers me, but I'm still looking to hedge my bets.
I did purchase a June 05 Eurodollar put and plan to purchase one or more for each adjustment periods which fall in June and December.
Any other suggestions?
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Wed Dec 15, 2004 4:36 pm |
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BlankenshipFP
Money Talk Advisor
Cash: $ 79.56
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Joined: 05 Oct 2004
Location: Illinois
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Not from this corner - it looks like you've done your homework and considered the impacts. Since you have a relatively short timeline (5 years), and are paying on the principal as you go, at the same time hedging against dramatic increases... Sounds like you're good to go.
If at some point in the near future you change your mind and think you're going to be in the house any longer than the 5 years you projected, I'd try to lock in on a rate anyhow. In the long run you'll probably end up paying less interest, while not having to mess with the hedging.
Hope this helps -
Jim Blankenship, CFP®, EA
Blankenship Financial Planning, Ltd.
www.BlankenshipFinancial.com
Standard IRS Circular 230 Notice Applies
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Wed Dec 15, 2004 4:51 pm |
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