From the course: Foundations of Business Banking
Join today to access over 23,200 courses taught by industry experts.
Fixed-rate vs. variable-rate loans
From the course: Foundations of Business Banking
Fixed-rate vs. variable-rate loans
- fixed-rate and variable-rate loans have advantages and disadvantages for both the borrower and the lender. First, a word about interest rate risk. Interest rate risk is the uncertainty about future interest rates and their impact on cash flows and on the attractiveness of existing assets and liabilities. A variable-rate mortgage, also called an adjustable rate mortgage or ARM, is a good illustration of one type of interest rate risk. The periodic interest payments on the variable-rate mortgage will fluctuate in the future, depending on the level of future interest rates. This fluctuation imposes uncertainty or risk on both the borrower and the lender. The borrower is not sure how much she's going to have to pay, and the lender is not sure how much she's going to receive. A fixed-rate mortgage is a good example of another type of interest rate risk. If prevailing market interest rates decrease, a person stuck with future…
Practice while you learn with exercise files
Download the files the instructor uses to teach the course. Follow along and learn by watching, listening and practicing.
Download courses and learn on the go
Watch courses on your mobile device without an internet connection. Download courses using your iOS or Android LinkedIn Learning app.