Hedging of EU rental property mortgage

[joanar]

Assume you have a 500k fixed rate mortgage until 2025, then variable. You want to hedge the interest rate risk, how would you do that?

You could buy puts on GBL (10 year Bund) but you would need to roll them annually and they seem very expensive: 1yr ATM costs roughly 5k for 150k notional. So for 500k you would buy ~3 contracts every year.

Are there better (more liquid) products?

 

[newwurldmn]

You don’t have interest rate risk on a fixed rate mortgage.

 

[joanar]

no I meant fixed until 2025, then variable

 

[JamesJ]

You don’t have interest rate risk on a fixed rate mortgage.

joanar probably talks about the interest rate risk on renewal

 

[joanar]

yes exactly

 

[joanar]

I basically want to hedge the (tiny) chance of a 5% bund in 2025

 

[blink18]

I basically want to hedge the (tiny) chance of a 5% bund in 2025

Bund futures
Euribor futures

 

[joanar]

yes of course but I don't see any options listed beyond 2022. how would you structure/ roll the hedge?

 

[JamesJ]

Maybe short IEF?
borrow rates seem reasonable

 

[joanar]

How would you size that? especially since the loan is in EUR?