While floating rate mortgage loans may offer lower interest rates to borrowers than comparable fixed-payment mortgages, floating-rate loans may increase a lender's exposure to which of the following risks since borrowers may not be able to continue to service the debt if payments on the loan increase significantly?

Question

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Floating-rate loans increase the lender's exposure to default risk because if interest rates increase significantly, the borrower may not be able to afford the higher payments, leading to default on the loan.

While Floating Rate Mortgage Loans May Offer Lower Interest Rates