> How can an individual investor hedge against interest rate risk?
>
> Are there any ways for an individual investor to hedge against interest
> rates increasing?
>
>
Hedge against rate risks by locking in when rates are low. In your
case you have no rate (because you are renting) so I would suggest
buying while rates are low and locking the low rate in for a long
period of time.
If prices decline (with a rate rise) but you have already bought your
house, then there is little risk with this, assuming you will stay put
in house for 10-25 years.
If 10-25 years is not on your agenda, then ask yourself if you are
willing to do a 7/1 ARM or 10/1 ARM, locking rates in for 7 or 10
years before adjusting. More than likely the adjustment would be
upward, but the benefit is a lower rate now.
If you buy- either with a fixed rate loan or ARM product, you will be
building equity in your house, assuming the house itself does not
decline in value. The more time you give yourself in your first house
(say 15 years instead of 10), the more likely you will have
substantial equity when selling. More than likely it will take 4-8
years to see any reasonable equity from house purchase based on
closing costs and similar.
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