Is my cheap tracker mortgage a hedge against my deposits?

C

Codogly

Registered User
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Hi

stupid question perhaps ...in the current climate where central banks are printing money for fun and that presents the possability that they real value of money say (€) falls in purchase power terms , is it correct to say that having a mortgage in euro as well as cash on deposit that any fall in the € purchase power of your cash on deposit is in a way hedged by the relative fall in your mortgage value ???
Hope that makes sense.
 
Not really.

If you have €100k on deposit earning 0%
And a mortgage of €100k @3.5% , you are going to be €3,500 worse off at the end of the year.

You should pay down your mortgage.

Brendan
 
My mortgage is a low rate tracker @ 0.50% and my net deposit interest rate is 0.63% ...so my question still stands , does the fall in cash true value equal the falling true mortgage liability ?
 
Don't worry about the "true value" whatever that is.

If you are earning a guaranteed return , risk-free, net of tax in excess of your mortgage rate, then it makes sense not to clear your mortgage.

However, it's hard to imagine any deposit which is actually risk-free. German government bonds maybe?

Brendan
 
Thanks Brendan ... however your missing my question , I’m not interested in ever paying down a mortgage which has an interest rate of 0.5% ( cheaper money will never be had). My concern is that the 100k on deposit might well loose its purchasing power because the ECB are flooding the market with printed euros ! My question is have I effectively hedged that risk by having a mortgage in the same currency ? ... so no matter how weak the Euros purchase power becomes as long as I have an equal mortgage amount it also falls in relative terms.
 
I don't think I am missing your question. I think I am not explaining it properly.

Let's assume 100% hyperinflation sudden and without warning.

You have a deposit of €100k.

It will lose 50% of its value.

You have a mortgage of €100k.

If the ECB rate stays at 0% , your mortgage will be halved.

So you have not lost out, but nor have you gained anything.

The point of hedging is to reduce risk.

But you are taking an unnecessary risk.

1) Your deposit might be wiped out by a default
2) Your mortgage rate might rise quicker than your deposit rate

Forget about hedging to reduce risk when you can eliminate it.

I fully understand that it's hard to pay down a mortgage costing you 0.5%.

And maybe it's worth the very small risk to keep the cash. But I would probably put the cash in an investment rather than a deposit.

Brendan
 
Many thanks Brendan ... I personally have little appetite for investment at the moment ( I’d feel the markets are currently overvalued IMHO). When you say risk of default ... do you really think the risk that the government deposit protection would fail is realistically possible ?
 

Extremely unlikely for sums under €100k.
 
Agreed ... now the near risk is negative retail bank deposit rates ..,government and central
Bank trying to force us to spend
 
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