Interest rate risk refers to the potential for investment losses due to changes in interest rates. When interest rates rise, the value of existing bonds typically falls, as newer bonds may offer higher returns. This can affect investors holding fixed-income securities, such as bonds or bond funds. Additionally, interest rate risk can impact other financial products, including mortgages and loans. For example, if a borrower has a fixed-rate mortgage, they may benefit from lower rates, while those with variable-rate loans could see their payments increase as rates rise. Understanding this risk is crucial for effective financial planning.