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.
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Hedging a mortgage
- Thread starter chromosome
- Start date
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.
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.
(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.
Quote from quin8670:
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.
What on earth makes you think that the banks actually hold on to the exposure to these historically low rates?Quote from quin8670:
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.
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?
Quote from chromosome:
Greetings:
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!