Bloomberg News reviews the increase in interest rate cap prices with Chris Moore
Summary
In a conversation with Bloomberg News, Chris Moore examines the surge in interest-rate cap prices this year, with the cost for a two-year 2% rate cap increasing tenfold since January.
“Last year, it would be like buying flood insurance for your house in the mountains,” Chris Moore, a managing director at Chatham, said in a telephone interview. “This year, it's sort of like buying flood insurance for your house on the beach as a hurricane is making landfall.”Bloomberg News
Now that the Fed really is hiking, the cost of that protection has multiplied by 10 this year. For a $25 million mortgage, the cost was $535,000 in early May, compared with just $52,000 in January, for a two-year 2% rate cap, according to Chatham Financial Corp., a hedging advisory firm. Prices for the a similar three-year 2% cap rocketed up as much as 4,000%.
“Last year, it would be like buying flood insurance for your house in the mountains,” Chris Moore, a managing director at Chatham, said in a telephone interview. “This year, it's sort of like buying flood insurance for your house on the beach as a hurricane is making landfall.”
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