Hedging Adjustable Rate Mortgages (ARMs)?

[workingirl]

We bought a home last year and didn't think we'd stay in it for more than 5 years, so we financed with a 5/1 ARM at a low rate. We love the neighborhood and the house and now don't see ourselves moving for a very long time, if ever.I've heard of people moving to fixed rate products while rates are still relatively low, but I don't want to lose the very low rate we have locked in for the next four years. On the other hand, I'm concerned that rates could skyrocket and our mortgage payment would double.I'm looking for ideas for hedging against rising rates in the event we decide to stay in our house for the long term. One idea I've read about is to use equity in the house to take out a second fixed rate mortgage and used it to pay off the ARM if rates go against us. Another possibility is to invest in a mutual fund or derivative that would rise if interest rates rise.Please let me know if you have any ideas or strategies which may be helpful. Thanks

[John C]

I know that ARMs are very useful right now but like you said it is only locked in at a low rate for a short amount of time. You should be concerned with the rise in interest in the future because the stock market is doing so well. I would say that your best bet is to go with the home equity mortgage. Another good idea is to get maybe a high interest CD. My parents paid off their first home with a CD with high interest, but you have to be able to set back at least $50,000. And it usually is only a 6 month CD and the APR and APY will change accordingly. Try looking into those and see if that will help. There is a good bank called World Savings that has great interest rates and they will compete with other banks on certain things.

[SimpleMoneyGuy]

Making extra payments while the interest rate is low MAY be your best avenue at this time. ANYTHING you do when you hedge will cost you money - flexibility is expensive - just as making the wrong choice can be expensive too.DO NOT use the stock market as a hedge - the last thing you need is the rates going against you and then your mutual fund being worth less than you started - you are then going to be way behind.Getting ahead means getting the best return, while leaving your options open. Certainly a home equity loan MAY assist you in that it is USUALLY cheap to set up (if not free) and you MAY get a great rate (fixed) some banks are able to provide a variable Home Equity product that they will convert to fixed at little or no charge. Good luck