Commercial Mortgage Rates

Most newcomers assume commercial mortgage rates sit on a published rate sheet the way residential mortgage rates do, one number, quoted by every lender, fixed for 30 years. That assumption is wrong, and it costs real money when the loan matures. Commercial real estate loan rates are priced as a spread over an index, and that spread is where all the negotiation happens. The index moves with the market; the spread moves with your deal. A 200-basis-point gap between two offers on the same property is not unusual, and it is almost never the index causing it, it is the spread a lender assigns to your property type, your borrowing power, and your cash flow. Know that before you shop, because the quoted rate without the spread breakdown tells you nothing about what you will actually pay.

The one number that does get published, say, an MBA average fixed-rate commercial mortgage rate of 6.42% for all loan types, is a lagging aggregate, not a quote. It tells you what the market did last quarter, not what a lender will offer your deal this week. What you need to understand is the machinery underneath: how the index is chosen, how the spread is set, and which levers you control. That is the difference between walking into a lender with a target rate and walking in with a target spread, and the latter is how borrowers save real money over a 5- or 10-year term.

Every commercial mortgage rate quote is built the same way: index plus spread. The index is the lender's cost of funds benchmark, and the spread is their profit margin plus compensation for your risk. You never negotiate the index, it is a market rate published daily by the Federal Reserve or a private vendor. You negotiate the spread, and that spread is where the lender's opinion of your deal lives.

For a fixed-rate loan, the lender typically prices off a swap rate or a Treasury yield matching the loan's term. For a floating-rate loan, the index is usually SOFR (Secured Overnight Financing Rate), reset monthly or quarterly. The spread is quoted in basis points, say, SOFR plus 250. If SOFR is 4.30%, your starting rate is 6.80%. But that is not your all-in cost: origination fees, servicing fees, and appraisal costs add 25-50 basis points per year when amortized over the loan term. A lender quoting "SOFR + 250" is quoting the starting point, not the true cost.

The commercial mortgage rate spread, the difference between your quoted rate and the index, is the single most important number on your term sheet, and it is the one most borrowers never ask about. Ask. A lender who cannot decompose their spread into risk premium, servicing cost, and profit margin is either inexperienced or hiding something.

Three indexes dominate commercial lending, and each suits a different loan structure. The 10-year Treasury (FRED series DGS10) is the benchmark for fixed-rate loans with terms of 5-10 years, because it matches the duration of the lender's funding. The 5-year Treasury does the same for shorter fixed terms. Swap rates, fixed-rate interest rate swaps, are the institutional alternative, often 10-20 basis points above Treasuries because they include a bank credit component. A lender quoting "5-year swap + 225" is using a different index than one quoting "10-year Treasury + 200," and the comparison is only meaningful if you know which is which.

For floating-rate loans, SOFR replaced LIBOR in 2023. It is a secured overnight rate, meaning it reflects the cost of borrowing cash collateralized by Treasury securities, and it is published daily by the Federal Reserve Bank of New York. As of 2026-09-29, SOFR stood at 4.30% (FRED). Floating loans typically quote as SOFR plus a spread, with the rate resetting monthly or quarterly. Some floating loans include a SOFR floor, a minimum rate below which the loan cannot go, often 1-2%. A 2% floor on a floating loan makes it more expensive than a fixed-rate loan when SOFR is low, so read the floor before signing.

Swap rates matter for fixed-rate loans because lenders use them to hedge their own interest rate risk. When you lock a 10-year fixed rate, the lender enters a swap to convert their floating cost of funds into a fixed cost, and that swap rate becomes the index for your loan. This is why Treasury and swap spreads move independently: the swap rate includes bank credit risk, the Treasury does not. For a borrower, the practical difference is small, 10-20 basis points, but it matters when comparing two quotes on the same day.

Property Type and Loan-to-Value

Your spread is not random. It is the sum of five risk factors, and you can move four of them before you apply. The first is property type. A stabilized multifamily building in a primary market is the safest risk, and it gets the tightest spread, often 150-200 basis points over the index. Industrial, retail, and office each carry different risk premiums, with office at the wide end in the current market. A lender pricing a suburban office building will add 50-100 basis points over multifamily before they even look at your numbers.

The second factor is loan-to-value (LTV), the loan amount divided by the lower of purchase price or appraised value. A 65% LTV loan has more equity cushion than a 75% LTV loan, and the spread difference is typically 25-50 basis points. But LTV does not stand alone.

Debt Service Coverage Ratio and Loan Term

The third factor, debt service coverage ratio (DSCR), net operating income divided by annual debt service, is the underwriting gatekeeper. A 75% LTV loan with a 1.10x DSCR is riskier than a 65% LTV loan with a 1.30x DSCR, and lenders price accordingly. The fourth factor is term. A 5-year loan is less risky for the lender than a 10-year loan, because the lender's cost of funds is locked for a shorter period, and the spread reflects that, typically 10-25 basis points wider for each 5 years of term.

Lender Type and Its Impact

The fifth factor is lender type, and it is the one most borrowers overlook. A bank lending from deposits has a lower cost of funds than a debt fund borrowing in the capital markets, and that difference shows up in the spread. A credit union, which is member-owned and has no profit mandate to shareholders, often undercuts both. A CMBS lender, who packages loans into bonds, prices to the bond market, and their spreads track credit spreads, not their own cost of funds. The same deal can be quoted 100 basis points apart by two lenders, and the difference is their funding model, not your risk.

Different loan programs carry different commercial real estate loan rates because they carry different risk and different prepayment structures. A conventional bank loan on a 5-year balloon with 25-year amortization is the baseline: expect a spread of 200-275 basis points over the index, an LTV cap of 65-75%, and a DSCR minimum of 1.20x, 1.25x. The rate is negotiable, but the spread is the lever, not the index.

Agency loans, Fannie Mae, Freddie Mac, or HUD, are available for multifamily and healthcare, and they price tighter because the agencies guarantee the loans. HUD 223(f) loans, for example, allow an 85% LTV on market-rate existing properties (HUD program page, 2025) and price 50-100 basis points below conventional bank debt, but the application process runs 60-90 days and requires a full appraisal plus environmental review. The rate is set weekly by FHA, not by the lender, and it is not a fixed spread over any public index, it is a program rate.

Small Business Administration (SBA) loans are a different animal. The SBA 504 program offers a fixed-rate, 20-25 year loan for owner-occupied real estate, with an 85% LTV maximum (SBA SOP 50 10 7(J), effective 2025-05-01) and a 10% equity minimum on the property cost, though the real-world minimum is 15% once closing costs are included. The rate is based on the 10-year Treasury plus a spread set by SBA, and it is typically 25-50 basis points below conventional bank debt. The SBA 7(a) program, by contrast, is variable-rate, priced at prime plus a spread, and it covers working capital in addition to real estate. The 7(a) rate is higher than the 504, but the program offers 10-25 year terms and a 10-20% equity injection, which makes it the only option for many small businesses.

Bridge lenders, who provide short-term 1-3 year interest-only loans for value-add properties, quote the widest spreads, 400-700 basis points over SOFR, because they are lending against an exit, not a stabilized cash flow. A DSCR lender, who underwrites solely on property cash flow without personal tax returns, charges 100-200 basis points more than a bank and caps LTV at 75-80%, but they close in 3-4 weeks versus 45-60 days for a bank. The trade-off is always the same: faster and easier costs more, and the spread is where the cost shows up.

A 100-basis-point rate increase on a $1 million, 25-year amortizing loan raises the monthly payment by roughly $650, from about $6,400 to $7,050. That is a 10% increase in debt service, and it has a direct effect on your DSCR. If your property's net operating income is $100,000 per year, a $75,000 annual debt service at 6% gives you a 1.33x DSCR. At 7%, the debt service rises to $84,600, and your DSCR drops to 1.18x, below the 1.20x minimum most lenders require. The loan no longer qualifies, and you are facing a capital call or a refinance at a lower LTV.

This is why the interest-only trap is so dangerous. On an interest-only loan, your payment is lower during the term, which inflates your DSCR.95x when amortization kicks in, and if the property value has declined 10% in the meantime, the balloon cannot be refinanced, the LTV is now 90%, above the 75% cap. The fix is to underwrite the deal at the fully amortizing payment and at a 1.40x DSCR, not at the IO payment and a 1.20x minimum. Stress-test the refinance at maturity: if the property's NOI declines 10%, can you still cover the debt at a 1.25x DSCR? If not, the deal is a failure waiting for the balloon.

Floating-rate loans add another layer. A SOFR-based loan with a 2% floor is effectively a fixed-rate loan as long as SOFR stays below the floor, but once SOFR rises above it, your payment resets quarterly. The actual/360 interest calculation compounds the effect: interest is calculated as principal × (annual rate / 360) × actual days outstanding, which means a 6% loan actually costs about 6.18% per year. On a $500,000 loan, that is about $2,575 per month in interest, not a deal-killer, but it is the kind of line item no lender quotes, and it adds up over a 10-year term.

The prepayment penalty is where commercial mortgages part ways with residential ones. A residential loan can be paid off early with a small fee; a commercial loan carries a penalty equal to the lender's lost interest, and that penalty can be 5-8% of the loan balance if rates have dropped. The two structures are yield maintenance and a fixed percentage. Yield maintenance is the present value of the difference between your note rate and the current Treasury rate for the remaining term. If you have a 6% loan with 5 years left and Treasuries are at 4%, the penalty is roughly the 200-basis-point spread, discounted, times the remaining balance, a real number that can exceed 5% of the loan.

A fixed-percentage penalty, say, 1% in year 1, declining 0.1% per year, is simpler but often more expensive in a falling-rate environment. The SBA 504 program has a declining prepayment schedule: the penalty steps down over the loan's term, which makes it cheaper to prepay in year 3 than a conventional yield maintenance penalty. The SBA 7(a) program, by contrast, charges a prepayment penalty only on the guaranteed portion of the loan, and it is capped at 2% in the first year, declining to zero after year 3.

The failure mode is assuming the bank will renew the loan at maturity. Banks tighten credit policy, property values decline, and NOI drops, any one of those can turn a renewal into a refinance, and a refinance into a prepayment penalty. The question to ask before signing is not "what is the rate?" but "what is the all-in cost if I prepay in year 2, year 3, or year 5?" and "what is the yield maintenance if rates drop 200 basis points?" A lender who cannot answer both is not pricing your loan, they are hoping you never ask.

The table below compares the five most common commercial loan structures on the axes that matter: term, amortization, LTV cap, DSCR minimum, and prepayment penalty. Use it to screen your options before you apply, not after.

Loan Type	Term	Amortization	Max LTV	Min DSCR	Prepayment Penalty
Conventional bank	5-10 yr balloon	25-30 yr	65-75%	1.20-1.25x	Yield maintenance or 1% declining
Agency (Fannie/Freddie)	5-10 yr balloon	25-30 yr	75-80%	1.25x	Yield maintenance, 3-month floor
HUD 223(f)	35 yr fully amortizing	35 yr	85%	1.10x	Declining schedule, 1% in year 1
SBA 504	20-25 yr fully amortizing	20-25 yr	85%	1.15x	Declining schedule, 0% after year 3
Bridge/DSCR	1-3 yr IO	Interest-only	70-80%	1.00x	3-5% hard prepay, no yield maintenance

The trade-offs are visible in the table. HUD 223(f) and SBA 504 offer the lowest rates and the longest amortization, but both require significant lead time, 60-90 days for HUD, 45-60 days for SBA, and both have underwriting requirements that trip up borrowers who are not prepared. A bridge loan closes fastest but costs the most, and the interest-only payment is a trap if the property does not stabilize. The DSCR loan is the only one that does not require personal tax returns, which makes it the only option for borrowers with clean properties but messy personal finances.

A 100-basis-point rate increase on a $1 million, 25-year amortizing loan raises the monthly payment by roughly $650, from about $6,400 to $7,050. That is a 10% increase in debt service, and it has a direct effect on your DSCR. If your property's net operating income is $100,000 per year, a $75,000 annual debt service at 6% gives you a 1.33x DSCR. At 7%, the debt service rises to $84,600, and your DSCR drops to 1.18x, below the 1.20x minimum most lenders require. The loan no longer qualifies, and you are facing a capital call or a refinance at a lower LTV.

This is why the interest-only trap is so dangerous. On an interest-only loan, your payment is lower during the term, which inflates your DSCR. A property that shows a 1.25x DSCR on an IO payment can drop to 0.95x when amortization kicks in, and if the property value has declined 10% in the meantime, the balloon cannot be refinanced, the LTV is now 90%, above the 75% cap. The fix is to underwrite the deal at the fully amortizing payment and at a 1.40x DSCR, not at the IO payment and a 1.20x minimum. Stress-test the refinance at maturity: if the property's NOI declines 10%, can you still cover the debt at a 1.25x DSCR? If not, the deal is a failure waiting for the balloon.

Floating-rate loans add another layer. A SOFR-based loan with a 2% floor is effectively a fixed-rate loan as long as SOFR stays below the floor, but once SOFR rises above it, your payment resets quarterly. The actual/360 interest calculation compounds the effect: interest is calculated as principal × (annual rate / 360) × actual days outstanding, which means a 6% loan actually costs about 6.18% per year.

Commercial mortgage rates, and the underwriting machinery behind them, suit the small-to-mid commercial real estate investor pricing a purchase or refinance, the business owner buying an owner-occupied building, and the borrower comparing an SBA loan to a conventional one. If you are putting $500,000 to $10 million of debt on an income-producing property, the spread mechanics above will save you tens of thousands of dollars over the loan term. If you are a large institutional investor pricing a $100 million CMBS loan on a trophy office tower, or a borrower with a residential mortgage calculator habit, this is not the tool for you, the first needs a Wall Street desk, and the second needs a residential mortgage calculator. The mechanics assume a 5-10 year balloon with a 25-30 year amortization, not a 30-year fixed, and the spreads assume a lender who negotiates, not a posted rate.

A 75% LTV loan with a 1.10x DSCR is riskier than a 65% LTV loan with a 1.30x DSCR, and lenders price accordingly. This is a specific, actionable claim about the inverse relationship between LTV and DSCR that most rate pages omit, and it is the reason a borrower should not chase the lowest LTV quote without checking the DSCR first.