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 Managing Interest Rate Risk: Using Financial Derivatives by John J. Stephens, Economic conditions can change dramatically over time, requiring significant changes in interest rates. Loans that appeared desirable methods of expansion when taken out can, with a change in interest rates, become massive outgoings that leave the unprepared business exposed to potentially crippling debt. Whether borrowing, investing, saving or trading, a company will always have to take into account the cost of capital and therefore interest rate risk. The efficient management of this risk is essential for the survival of a company and any business that is exposed to such a risk should ensure that it is fully prepared to manage it. Aimed at senior managers within businesses, this book is a practical primer on how to reduce risk from changes in interest rates.
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Debt consolidation - Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan. Interest-only loan - An interest-only loan is a loan in which for a set term the borrower pays only the interest on the capital; the capital remains owing. At the end of the term the borrower may renew the interest-only mortgage, repay the capital, or (with some lenders) convert the loan to a principal and interest payment loan at his option. Fixed interest - A fixed interest rate loan is a loan where the interest rate doesn't fluctuate over the life of the loan. This allows the borrower to accurately predict their future payments. Debt-to-income ratio - Debt-to-income ratio is used by a lender to see if a borrower qualifies for a home loan. A debt-to-income ratio of 28/36 means that no more than 28% of someone's income can go to housing and no more than 36% of one's income can go to the total monthly debt.
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