My mortgage is a fixed loan at 5.375%, yet with the tax deductions that mortgage interest carries, my “adjusted” cost of the interest is equivalent to a 4.2% rate.

If we look at the highest yielding money market or CD rates, we can find some as high as 6%*. This means that I have a theoretical carry trade between my mortgage and a money market account. Wow, that’s pretty cool.

This means I am actually profiting if I choose to keep funds in a money market account instead of pre-paying the mortgage.

Now, unfortunately, this is all theoretical… my money market account only yields 4.35%, so I’m clearing my “adjusted” cost, but not the real cost. I’m also curious if money market and CD rates will stay at this level for more than a year or two.

* Ok, the 6% rate is a technicality — it’s an introductory rate, but you can find 5.5% or better for quite a few CDs.