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Interest-rate risk |
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Interest-rate risk. Interest-rate risk describes the impact that a change in current interest rates is likely to have on the value of your investment portfolio. You face interest-rate risk when you own long-term bonds or bond mutual funds because their market value will drop if interest rates increase. That loss of value occurs because investors will be able to buy bonds with a new, higher interest rate, so they won't pay full price for an older bond paying a lower interest rate. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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Accordingly, investors looking to minimize the interest-rate risk in their portfolios should generally invest in fixed-income securities with very short terms to maturity. More important, the terms of the mortgage determine the affordability of the mortgage for the borrower and the sharing of interest-rate risk between the borrower and lender. The Blended-Rate mortgage helps diversify interest-rate risk by combining a fixed rate and an adjustable rate during an initial period of 3, 5 or 7 years. |
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