Treasury Rate
The yield on U.S. government debt securities, used as the benchmark index for fixed-rate commercial real estate loans. The 5-year, 7-year, and 10-year Treasury rates are the most commonly referenced benchmarks, corresponding to typical loan terms. Fixed-rate commercial loans are priced as the relevant Treasury yield plus a spread. Because Treasury rates fluctuate daily with market conditions, borrowers use rate locks to secure pricing during the underwriting and closing process.
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Related Terms
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.
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.
Basis Points (BPS)
A unit of measurement equal to one-hundredth of a percentage point (0.01%). 100 basis points equals 1%. Commercial real estate loan pricing is typically quoted in basis points over an index rate. For example, a spread of 250 basis points over SOFR means the rate is 2.50% above the current SOFR rate. Basis points eliminate ambiguity when discussing rate changes — a rate moving from 5% to 6% is a 100 basis point increase, not a 1% increase.
Permanent Financing
Long-term debt (5-30 years) secured by stabilized commercial real estate, underwritten primarily on current cash flow. Permanent loans offer lower rates than transitional financing and are available from life companies, banks, agencies, and CMBS lenders. They are the typical "take-out" financing after construction or bridge loans.
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