@MarkLondon As I understand the situation:
(a) You a US person ( citizen / Green Card ) is living in the UK
(b) you have local mortgage -- on a residence ( home ) -- through a local lender. Thus it is UKL denominated. So for US tax purposes, and only if you itemize , there is a lowering of interest payments but this is not a gain in any sense -- it is less of a deduction.
(c) your mortgage interest rate is likely to change in the future and you would like to find ways to offset this through forward contracts ( as a hedge ? )
(d) the hedge contract is a thing in its own right and has nothing to do with the mortgage and deduction thereof. You will have to recognize any gain / loss on consummation/ quenching of the contract .
So I am at a loss to understand where you get a FX gain/loss on the mortgage contract -- it is the deduction that is affected by the exchange rate and the interest rate in US$.
The FX contract is an investment and is recognized as such , even though it may indeed help your overall balance sheet.
Am I in the left field ?
Is there more I can do for you ?
