Although fixed interest rates may seem safer than variable rates, other risks may arise in some cases

Todd Sears, chief financial officer, Herman & Kittle Properties Inc.

As published in Scotsman Guide's Commercial Edition, February 2010.

With commercial mortgage-backed securities transactions picking back up in recent months, historically low long-term Treasury rates and declining spreads for commercial real estate loans, the opportunity for long-term, fixed interest rates is slowly returning for commercial mortgage borrowers. Most real estate and mortgage professionals may see this as an opportunity to reduce interest-rate risk.

But this might not always be the case. In some instances, fixed rates actually might increase other sources of risk, including operational and financial risk.

Here's what you should know about fixed and variable interest rates and their related risk to best help your clients.

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For mortgage brokers, helping clients understand the risks involved in real estate and how to best mitigate them is critical to earning referrals and repeat borrowers.

Fixed-rate loans often are considered a way to mitigate or decrease risk in a mortgage transaction because they control a primary source of uncertainty: interest-rate changes.

But risk often is like a balloon that expands on one side when pushed on the other. As such, mitigating interest risk requires examining all sources of risk and offsetting factors comprehensively.

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