From: joetaxpayer 
Newsgroups: misc.invest.financial-plan
Subject: Re: Making Money off Low, Fixed-Rate Mortgage
Date: Fri, 30 Jun 2006 07:43:02 -0500
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Ron Peterson wrote:
> woessner@gmail.com wrote:
> 
>>This is more of a theoretical question than a practical one.
> 
> 
>>I was just reading that the Fed has raised the federal funds rate to
>>5.25%.  Hey, at least it was just 1/4 point instead of 1/2.  And
>>mortgage rates have gone up, too.  According to BankRate.com, a 30-year
>>fixed mortgage in Virginia now averages 6.3%.
> 
> 
>>So this got me thinking.  My wife and I bought our first house a few
>>years ago when interest rates were REALLY low (5%).  Could someone with
>>a low, fixed-rate mortgage somehow capitalize on this situation and
>>make some money?
> 
> 
>>Again, this is just idle thinking...  I was thinking you could somehow
>>'relend' the money that was lent to you.  But all that money is only
>>realized as equity in your house.  And to tap that equity, you'd have
>>to do something like take out a home equity loan...  at today's rates.
>>So that wouldn't work.
> 
> 
> You can reinvest the money in the stock market and make more on the
> average, you to suffer a risk of losing money.
> 

The 5.25% money OP borrowed was sent to the seller of the house. He 
doesn't have it to invest. OP is now short a bond, which likely carries 
a put provision. i.e. he can repay it with no fee (I'll assume).
But you see, since a bond trades lower when rates go up, the bond is now 
valued at 75% or so of face value.
OP doesn't have a new chunk of money borrowed low, he already spent what 
he got. There's nothing to 'reinvest'.

The only advise to offer is that he *not* pay this mortgage early. He 
can now find CDs paying more than the 5.25 he's paying on the mortgage.
JOE