Hedging real estate interest rate

B

bagg

Hi,
I imagine this question has been asked before and I can find a few related threads but not quite what I'm looking for.

I want to lock my interest rate (standard variable rate) on my house. I can get a fixed rate from the bank obviously but that is 2% higher than the variable rate and there are big break costs if I ever wanted to break.

How can you hedge this on the futures market?

I'm guessing you could short or buy puts on a relevant bond - but which one? Then, how do I roll it over when the bond expires.

I've never traded futures but am experienced in stocks so I need someone to actually walk me through the hedging process!

Thanks all.

bagg

PS I'm actually in Australia - does anyone know if that makes a difference in terms of process - obviously I need to buy a future related to the Aus interest rate...
 
Look at the 10y Aussie bond futures. As you point out, if you do either futures or options on this bond future, you will need to roll quarterly. Alternatively, you can maybe look at actually trading the cash bond, instead of the future.
 
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