We are looking to get a 1.5 Mio Mortage, where the first 3 years we
only pay 1% per year as a payment. The remainder then gets added to
the principal. After 3 years we would have a regular downpayment
schedule. The drawback of this is that the interest rate of that
downpayment can not be locked in so we would get whatever the interest
rates are in 3 years.

My question now is, is  there another way to lock in the interest rate
indirectly, for example with derivatives, such as an interest rate
future, or call/put options. Where we would lose/gain the money
compared to the current rates when we get the rates in 3 years.

I would be looking at a 15year downpayment or 30 year downpayment
after the 3 years (or 27/12 years).

To answer this question please let me know how such a lock in could be
structured (what future/call/put option to buy as well as what the
costs of this insurance would be). Ideally provide 2 scenarios one
which can't be changed (I assume that would be a future) and one where
we could refinance any time (I guess with using options).

Please ask if you have any questions.

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Clarification of Question by mobile1-ga on 30 Mar 2006 16:43 PST

Another scenario we could see is that we purchase derivatives to
create a cap in 3 years where we don't pay a higher interest then for
example 8%...