Spread
The margin added to a base index rate (such as SOFR or Treasury) to determine a loan's interest rate. For example, a loan priced at "SOFR + 250" has a 2.5% spread over the SOFR index. Spreads reflect credit risk, property type, leverage, and market conditions. Lower spreads indicate more favorable pricing.
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Related Terms
SOFR (Secured Overnight Financing Rate)
The benchmark interest rate that has replaced LIBOR for floating-rate commercial real estate loans. SOFR is based on overnight repurchase agreement transactions and is considered more reliable than LIBOR. Floating-rate loans are typically priced as SOFR plus a spread, with rate caps often required to limit interest rate exposure.
Rate Lock
A commitment from a lender to hold a specified interest rate for a defined period while the loan is processed. Rate locks protect borrowers from interest rate increases during underwriting. They typically cost 0.5-1.0% of the loan amount for 30-60 day locks, with longer locks costing more. Some lenders offer "float-down" provisions if rates decline.
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