"We compare conventional mortgage contract designs like the adjustable rate mortgage and the Øxed rate mortgage with an alternative mortgage contract design that allows the borrower to beneØt from interest movements but secures him of any interest rate risk. We investigate the optimal mortgage contract design from both a macroeconomic and the borrower's perspective. Our analysis relies on Monte Carlo Simulations of a risky interest rate, house value and borrower income and distinguishes between diÆerent economic trends. We also study the influence of surprising events in the economy on the optimal mortgage contract design.""