Hedging a mortgage

Discussion in 'Trading' started by chromosome, Aug 3, 2009.

  1. The statement reflected my view that banks are continuing to make poor decisions. To make a 30 fixed mortgage at 5% is not prudent. To be locked in at such a low yield when rates are at historic lows is absurd. Would you take your money and buy long bonds and hold for the long-term at this point in time? Its only not absurd if you don't know how to manage money and enjoy making bad decisions.
     
    #21     Aug 10, 2009
  2. sjfan

    sjfan

    I'm not sure you under how this all works. The bank can go swap at around 5% year for floating payments. So, it may seem to you that the bank is locked into earning 5%, but that isn't the case. They could (and usually would have) swapped that out.

    (And this is not even getting into the complex topic of bank duration management....)

    It's funny.... we all like a good banker joke like we like a good lawyer joke, but it's pretty naive to think these things haven't been thought through. This isn't exactly complex derivatives. Borrow short lend long has been the basic banking business for hundreds of years.

     
    #22     Aug 10, 2009
  3. What on earth makes you think that the banks actually hold on to the exposure to these historically low rates?
     
    #23     Aug 10, 2009
  4. Why are you putting 25% down? You should be able to avoid PMI with 20% down. Also, how many years is the term for the $47,500 floating loan?
     
    #24     Aug 10, 2009