Embedded in most mortgages is the option to refinance in case rates decline. Most borrowers don't realize that they're paying for this option, and that the mortgage would be substantially cheaper (potentially) without this option. I remember reading Bill Gross a few years ago saying that Pimco got about 100 basis points in return by buying Fannie Mae paper and collecting this refinance risk premium. So lets say you were to get a mortgage with no refinance option, presumably it would be cheapr than a normal mortgage. The mortgage also is I/O. Of course, if rates decline, you don't benefit . . . but let's assume you also buy a zero coupon bond at the same time. The bond matures at the same time as you I/O mortgage. If rates decline, you can cash in the zero and benefit without paying for that option. If rates go up, well, you just cash in the zero when the mortgage comes due, or sell and realize a tax loss. There are three potential benefits to this plan . . . that you don't pay for the refinance option, and that you still benefit from lower rates with the zero, and still benefit from the mortgage interest deduction through the life of the mortgage.