Suggestion on how to hedge HELOC risk long term?

Discussion in 'Financial Futures' started by scriabinop23, Jul 17, 2008.

  1. Looking for suggestions on how to hedge interest rate risk on my HELOC. Basically am borrowing against the house on my HELOC to buy some property now, and would like to be somewhat insulated from a skyrocketing interest rate environment while partaking in dollars saved by not spent on mortgage fees and higher long term rates.

    Anyway to buy long long term ZF (Five yr note) puts (past late 09) on IB? Or should I just buy lottery ticket puts on a quarterly basis (for a few ticks) to hedge against black swans?

    Please post recommendations/ideas on how to have my cake and eat it too... :)
  2. You could refinance both liens into a fixed-rate mortgage. Or, get a fixed-rate home equity loan and place the cash into a high interest rate account until needed. Albeit the interest rate will be a little higher.

    HELOC are dangerous in this environment as they are variable interest rates and too expensive to hedge.
  3. Actually... Fed fund puts about 4-6 months out will do the job sufficiently and cheaply (yes, cheaply) I excel'd multiple scenarios with fed fund puts at quoted prices and its a pretty effective hedge, believe it or not. (if calculated properly)