Instructions

Choose a fixed-rate mortgage even if the initial interest rate on a variable-rate loan is lower. With a variable-rate mortgage, the interest rate risk shifts from the bank to the borrower, with the homebuyer hoping that rates will go lower and the bank betting they will go higher. If rates do rise, the monthly payments on a variable-rate mortgage can swell, making a once-affordable payment difficult to manage.

Build a ladder of CDs rather than purchasing a single certificate of deposit. As maturities increase, the rates on CDs tend to rise, so there is a temptation to put all of your money in the longest-term CD available. The risk with that strategy, however, is that when the CD comes due interest rates will be very low. When that happens you can be stuck with a subpar return, or forced to take on more risk in exchange for a higher interest rate.

References

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