Home loan borrowers on a standard variable rate mortgage are subject to which type of investment risk?

• A. Currency
• B. Inflation
• C. Interest rate
• D. Liquidity

Answer: (C)

The main idea is that a standard variable rate mortgage exposes you to movements in interest rates. Since the rate on the loan can rise or fall with market rates, the borrower’s payments can change over time. This is classic interest rate risk: changes in prevailing interest rates directly affect how much you pay each month and the overall cost of the loan.

Currency risk isn’t involved here unless you’re dealing with foreign currencies, which isn’t implied by a domestic home loan. Inflation risk relates to the eroding value of money over time, not the immediate movement of loan interest rates. Liquidity risk concerns how easily an asset can be converted to cash, which isn’t the core issue in how a variable-rate mortgage affects your payments.