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Old 01-26-2017, 06:49 AM
AuburnKid AuburnKid is offline
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How to use futures markets when selling/buying a house

Let me first say that I have never done this. I always bet that my income would rise to meet any increase in interest rates. It is easy to see that if you believe that the FED digitizing trillions of dollars will cause run away inflation, then selling US bonds is the way to go compared to buying gold, which I think is going down in price. You know it's a lot of money when one FED chairman said "No, we did not print trillions of dollars, we digitized trillions of dollars. There is no way to print that much paper money without inventng the Million dollar note."

Suppose you want to sell your house, know it will take six months to close, then you want to replace with a house in new area. You may be afraid that the interest rates will rise before six months and want to lock in today's rate.

What you would do is sell as many $100,000 thirty year T-bonds contracts as you need for your new mortgage. If your new mortgage is $300K, you sell three contracts. If your six month window started last July, you sold 3 March 2017 contracts in July @ about 175. The March 2017 cost is now 150. You are ahead 3X$1000X25 points or $75,000. This is also a taxable event and you owe tax @ ordinary income rates. There should be a way around this but I do not know of any. Your new $300K mortgage will have rates like:

Today's Mortgage Rates and Refinance Rates
Product Interest Rate APR
Conforming and
Government Loans
30-Year Fixed-Rate Jumbo 4.375% 4.391%
15-Year Fixed-Rate Jumbo 4.125% 4.135%

The rates in July were in the 3.00% area. Your new mortgage is 1.375% higher. You will pay $4,125 more per year than if you secured the rate in July. This is about $60,000 more in interest in 15 years. But since you have the $75,000 (minus taxes, about $60,000) you end up with a wash. You break even. With the DJIA hitting 20,000 this may happen and we may see interest rates fall from 150 to a bond price of 125.

But the world may have a war, Russian meltdown, China invades Taiwan, or other Black Swan event. This will have a "flight to quality" effect. People will seek the relative safety of US Bonds instead of stocks, driving down stocks and raising bond prices. In this case the bond market rises to 175 again, you have now a $75,000 loss. One big problem is you must have $$75,000 in your futures account. In theory the mortgage rates should retreat back to 3%. You again have a wash by saving the $60,000 in mortgage interest but only if banks lower rates as fast as they raise them. You can deduct the loss for income taxes but only at $3000 per year with a loss carry forward.

Pres. Trump did this about 20 years ago. His giant loss carry forward was deducted against his income and he may have deducted a billion dollars in bits over the years. Business rules are different. Hillary spoke a lot on this subject making the now President a monster. Of course in the real world, Trump corp. paid a $Billion over the 20 years in property, workman's compensation (this one is a killer. High steel workers up in a new, over two story building, are taxed at 25% of base pay. Meaning if your new condo project had 40 $million in steel workers pay, you paid $10 million in workman's compensation alone plus FICA, State, NYC tax and other taxes).

World economy almost melts down from $Trillion bad deal.

This is quite the imperfect system but it's all I have. This could also be done with three Options contracts with less risk. I have not figured that one out. Options prices go up/down like a yo-yo.
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Old 01-26-2017, 11:24 PM
nutty_bar nutty_bar is offline
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This is too complicated... just tell us what to buy and when.
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Old 01-27-2017, 09:09 AM
AuburnKid AuburnKid is offline
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Too complicated a thing to try

Yeah. As I got done I realized that I was writing the most useless POS for a gaming site.

There are way too many things that can move the market NOT in the direction that will help you. I can sum this up as follows:

Pretend I never wrote a thing.
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bond, mortgage, tax

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