Patent ID: 7720752

Claim:
A method for determining costs associated with providing a hedge for a residential mortgage which has an adjustable interest rate for at least a future, post-closing portion of the term of the mortgage, comprising: receiving from a user variables defining the residential mortgage and the hedge to be applied to the residential mortgage; determining, using a computer programmed to do so, an initial rate for a post-closing initial rate period that is associated with the residential mortgage; displaying on a display to the user the initial rate; displaying a plurality of monthly payment amounts for the initial rate period, wherein each of the plurality of monthly payment amounts for the initial rate period corresponds to a different type of hedge; and for each of a plurality of predetermined lock-duration periods of the at least a future, post-closing portion of the term of the residential mortgage: determining, using a computer programmed to do so a lock-duration rate that applies for the predetermined lock-duration period and that is different than other lock-duration rates for other of the plurality of predetermined lock-duration periods; displaying on the display the lock-duration rate; displaying a plurality of monthly payment amounts for the predetermined lock-duration period, wherein each of the plurality of monthly payment amounts for the predetermined lock-duration period corresponds to a different type of hedge; calculating, using a computer programmed to do so, a plurality of up-front fees associated with the hedge based on the sum of a plurality of products of interest rate reductions from potential market rates to the lock-duration rate that applies for the predetermined lock-duration period and probabilities of the occurrence of the interest rate reductions, wherein each of the plurality of up-front fees corresponds to a different type of hedge; and displaying to the user the plurality of up-front fees.