[quote=deadzone]
jp, so what you are saying (i think) is to refinance the house and pull out the money at let’s say 4.5% for arguments sake, and hold it in short term account temporarily. Then when inevitably interest rates start shooting up and you can get safe short term debt instruments for above 4.5% start purchasing these.
I like the logic, just be aware of the risks. The short term cash accounts currently are earning maybe 1% so while you are awaiting the interest rate boom you would be losing significant amount of money. Once you start purchasing debt, to be safe you would have to stick to relatively short term. If you buy 10+ year instruments and interest rates keep moving higher then you will have to hold them until maturation or possibly lose your ass.
Also, it could be a long time before interest rates go up significantly (short term rates above 4.5%). Unlike sdr, the Fed (and US government) knows full well that a significant ramp up in interest rates in the next 1-2 years would be catastrophic (reset chart). So they will continue to do everything it takes to keep that from happening (QE3, QE4….QEn).
So if I were following this strategy, I would have to be willing to take the risk of losing 1-3% for at least the next two years. And again, I wouldn’t risk putting any of the money into longer term instruments.[/quote]
deadzone – yes, that’s the rub, as I even stated. Rates will eventually go up. The unknown factors are when and how high. So in the interim, you could be eating it short term. It would be idle money, basically, until the rates start to rise. Say rates rose to 10% in 5 years. Potential to earn a fair amount is considerable when you look at a home at 4.5% for 30 years. There’s a risk, no doubt.
