Can someone tell me how to construct a rate lock so I can lock in current rates for 1 year, basically paying less than a mortgage broker would charge ? What's the cost, in % terms to lock in a rate using interest rate options if that is the appropriate vehicle.
Why would you want to lock in rates when the fed may ease? Also, why for a year? The only reason to "lock in" is if its likely rates will increase just before closing. I don't think it would be cost effective unless you think rates are going up more than 100 basis points. If you time horizin is really a year, I would be more concerned with an increasing in the price of housing, which you can hedge with futures in certain markets.
Why would I hedge? Well, the bank wants 1% to hedge for a year and i would like to lock in rates now. I am not interested in waiting. Arnie, your idea the fed might ease is countered on the other side by those who think long rates will rise. That's why it's a market and I'd like to find out the cost to hedge.