Hedging a mortgage with an ETF

Discussion in 'ETFs' started by chromosome, Dec 11, 2011.

  1. I am in the process of obtaining financing for a home purchase. The breakdown is as follows:

    Cash down payment (no rate): $15,000
    Cash down payment (floating 3% rate - follows PRIME, floats monthly): $47,500
    Loan from bank (30-year fixed, 5%): $187,500

    I am interested in setting up a hedging stragetgy to protect myself against the upward movement of PRIME. I am wondering if anyone has experience with this on a retail level.

    The specific question is whether or not there is an ETF product that follows the PRIME rate I may short or if a futures account would be a better idea. Any thoughts are appreciated, thanks!
  2. LEAPup



    Do what you wish with an ETF like PPR that "does" what you want it to do, but imo, you need to use derivatives to get the results you're after. Best wishes.:)
  3. Well played sir!

    I was contemplating doing this for another one of his posts today.
  4. 1) An ETF may not "track" as well as you hope for. :(
    2) Fed Funds futures should track the fed funds rate more precisely and ideally, the prime rate will be ~300 basis points over that. :cool:
    3) EuroDollar futures may be better if you end up getting a LIBOR-indexed mortgage. :)
  5. If he needs to <i>borrow most of his downpayment</i> why does anyone imagine he has assets sufficient to trade futures?
  6. 1) That's a valid point. :)
    2) This site would have much less "traffic" if posters had to prove financial and psychological suitability to trade futures. :(
    3) I didn't want to simply tell the guy to go to wilmott.com instead. :cool: