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Tracker Mortgage - Hedge against rate rises

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  • 23-03-2011 8:33pm
    #1
    jamesbrond
    Closed Accounts Posts: 132 ✭✭


    I was thinking that if you had a tracker mortgage that it lends itself perfectly to hedging. Similar to hedging against currency fluctuations.

    Does anyone know if there is any spreadbetting company where you can bet on the ECB rate?

    So you bet on the ECB rate to rise. It rises and you gain money. You lose money on your mortgage. If the rate goes down you lose on the bet, but you gain on the mortgage.

    That way you could have your current rate for the full term of your mortgage no mater what happened with the ECB.


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    #2
    SteoL
    Closed Accounts Posts: 1,545 ✭✭✭SteoL


    jamesbrond wrote: »
    I was thinking that if you had a tracker mortgage that it lends itself perfectly to hedging. Similar to hedging against currency fluctuations.

    Does anyone know if there is any spreadbetting company where you can bet on the ECB rate?

    So you bet on the ECB rate to rise. It rises and you gain money. You lose money on your mortgage. If the rate goes down you lose on the bet, but you gain on the mortgage.

    That way you could have your current rate for the full term of your mortgage no mater what happened with the ECB.

    Dunno but doubt it. Even if there were some product out there, for effectively eliminating Risk, I would be willing to bet it would come with a fairly chunky upfront premium.


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    #3
    3DataModem
    Registered Users Posts: 3,997 ✭✭✭3DataModem


    You raise a good point.

    Person A: 300k tracker mortgage at ECB+1%
    Person B: 300k variable mortgage at 4.5%

    Lets say person A can afford (e.g. via inheritance) to pay off the whole 300k in one go.

    It would be worth B's while to say "Pay off my mortgage instead and I'll pay your mortgage repayents forever."

    Person A - same position (i.e. no mortgage)
    Person B - lower repayments forever.

    If this could be done legally and binding, this would be sweet. Companies already do this (CD swaps and IR swaps) so if people could do it...


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    #4
    jamesbrond
    Closed Accounts Posts: 132 ✭✭jamesbrond


    SteoL wrote: »
    Dunno but doubt it. Even if there were some product out there, for effectively eliminating Risk, I would be willing to bet it would come with a fairly chunky upfront premium.

    spreadbetting companies already allow you to to bet on all sorts of indexes. They arent worried whether its a good bet or not. They have ways of hedging themselves where they are only interested in a profit from both sides of the transaction.
    Im trying to find some product that trackes the ECB but I cant seem to find one.

    I was looking over on askaboutmoney.com today and they are talking about this too.


  • Options
    #5
    dotsman
    Registered Users Posts: 3,636 ✭✭✭dotsman


    3DataModem wrote: »
    You raise a good point.

    Person A: 300k tracker mortgage at ECB+1%
    Person B: 300k variable mortgage at 4.5%

    Lets say person A can afford (e.g. via inheritance) to pay off the whole 300k in one go.

    It would be worth B's while to say "Pay off my mortgage instead and I'll pay your mortgage repayents forever."

    Person A - same position (i.e. no mortgage)
    Person B - lower repayments forever.

    If this could be done legally and binding, this would be sweet. Companies already do this (CD swaps and IR swaps) so if people could do it...

    I imagine there would be legal fees/issues regarding the mortgage. Basically, it would be very hard to do without breaking the terms and conditions on the home loan. It would be different if it was an investment property, but an owner occupied residential mortgage is unique in law (ie CCA) to all other securities.


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