Last post shows clearly that any interest rate change will be priced in index futures. In order to hedge your mortgage interest rate, what you only need to do is a calendar spread of the index futures.

For example buy longer dated futures and sell front expiration futures and roll over near expiration. If interest rate does not change, you position will be netted no gain and no loss. If interest rate drop, your calendar spread will lose bit. But there is not much room to drop (fed fund already at 0.25 percent, how low can it go?). On the other hand, if interest rate goes high to same as the end of 2007 level, assume SPX dividend does not change, then your 3 month calendar spread will have a gain of roughly $800. A one year calendar spread will have a gain of $3200.
Calculate your monthly payment using different rate, hedge the difference using index futures. Doing that, you are ahead of the game of your banker.

There are a lot other different ways to play interest rate, dividend and tax. For more information, visit us at www...