How hedge interest rates?

You could sell short zero-coupon bonds of the appropriate maturity.

You might be able to buy puts on appropriate interest rate indexes or puts on appropriate interest rate index futures.

Or depending where you live, you might be able to sell a Case-Schiller housing price index future for your metro area and so hedge the price change directly.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

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"sinister" wrote

Another simple thing to do is increase your downpayment.

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Yes there are ways to hedge against interest rate increases. But for an individual you are going against professionals. It's more likely for you to lose than to win, much more likely.

When you are talking about the price of a house that you live in currently, getting a fixed rate mortgage is your best way. Short term fluctuations in the price of your house don't matter to you individually.

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Long term interest rates don't vary as much as short-term rates.

i agree with Peter L., buy as soon as possible. Rates won't move up until the housing recession is done.

Interest rates increases will also cause the stock market to fall, so you would sell bonds or stocks short or buy puts.

Start shopping for a house now and after you have looked at 20 places, you will have a better idea of what's a good buy.

-- Ron

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why do you say this? Don't you think there are professionals that think interest rates will be going up? Maybe I don't understand what you are getting at here.

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Hedge against rate risks by locking in when rates are low. In your case you have no rate (because you are renting) so I would suggest buying while rates are low and locking the low rate in for a long period of time.

If prices decline (with a rate rise) but you have already bought your house, then there is little risk with this, assuming you will stay put in house for 10-25 years.

If 10-25 years is not on your agenda, then ask yourself if you are willing to do a 7/1 ARM or 10/1 ARM, locking rates in for 7 or 10 years before adjusting. More than likely the adjustment would be upward, but the benefit is a lower rate now.

If you buy- either with a fixed rate loan or ARM product, you will be building equity in your house, assuming the house itself does not decline in value. The more time you give yourself in your first house (say 15 years instead of 10), the more likely you will have substantial equity when selling. More than likely it will take 4-8 years to see any reasonable equity from house purchase based on closing costs and similar.

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