Apartment Refinance Rates: How Your Rate Is Built

Short answer

An apartment refinance rate is a market index plus a spread. Fixed-rate loans price off the Treasury yield that matches the loan's term; floating-rate loans price off SOFR. The spread depends on leverage, debt service coverage, loan size, property and market, prepayment terms and the lender's own costs. Two quotes can differ because any one of those differs.

Today's index prints

A lender's rate sheet starts from the market. These are the latest Treasury and SOFR prints that apartment loans are priced against. They update from the source; we never type them.

Today's index rates

Loading today's prints from the U.S. Treasury and the New York Fed…

Your loan rate is one of these numbers plus a spread. The rest of this page is about the spread, because that is the part you can change.

How the rate is built: index plus spread

Fixed-rate loans price off a Treasury yield with a maturity close to the loan's term. A 10-year fixed loan is usually quoted against a 10-year Treasury, a 5-year loan against a 5-year. The lender adds a spread and your coupon is fixed from the lock.

Floating-rate loans price off SOFR, the overnight funding rate published by the Federal Reserve Bank of New York, often in the form of one of its published averages. The rate resets with the index for the life of the loan, so your payment moves.

The spread itself has parts. Fannie Mae, for example, describes its locked rate as an index plus an investor spread plus credit fees made up of a guarantee fee and a servicing fee. The investor spread is what bond buyers demand; the fees pay the agency and the lender that services your loan. Other lenders have different parts, but the structure is the same: the index is the market's, the spread is the deal's.

What moves your spread

Factor	Spread tends to be lower when	Why
Leverage (LTV)	You borrow less against the value	More equity cushion in a loss
DSCR	Income covers the payment by more	Less chance of a payment default
Loan size	The loan is larger, up to a point	Fixed costs of making and servicing a loan spread over more dollars
Property and market	Newer or well-kept buildings in deep rental markets	Easier to re-lease and to sell
Prepayment structure	You accept yield maintenance or defeasance	Investors are protected if you pay off early; a step-down usually costs more
Interest-only	You take less or none	Amortization reduces the balance at maturity
Term and lock	Standard terms, a standard lock window	Longer or early locks carry more hedging cost
Sponsor	You have experience, net worth and liquidity	Lenders price the operator as well as the building

Freddie Mac's Conventional Small term sheet is explicit on one of these: step-down prepayment and yield maintenance without defeasance are available at an additional cost. That cost shows up in the spread.

Fixed or floating

Fixed suits a stabilized building you plan to hold through the term: the payment is known, and lenders size the loan once. The price is the prepayment structure, which makes early exits expensive.

Floating suits a building you expect to sell, renovate or refinance soon: prepayment is usually cheaper, but your payment moves with SOFR. Many floating-rate lenders require an interest rate cap that limits how high the index can go for you, and the cap is a real cost that rises with rate volatility. Price one with the rate cap calculator, and see fixed vs floating for the full comparison.

Rate locks: when the number becomes real

A quote is not a rate until it is locked. Until then, both the index and the spread can move. Agency lenders offer locks at several stages:

Spread lock. Freddie Mac's Conventional Small offers a spread lock for 60 days after loan application. The spread is fixed; the Treasury still floats.
Index lock. Freddie Mac's Index Lock fixes the Treasury component after a signed application, subject to a quoted Treasury floor. It is aimed at borrowers who have had a Freddie Mac loan purchased in the last 24 months, with a 2% good faith deposit. Fannie Mae's Streamlined Treasury Lock similarly locks the index for repeat sponsors while the spread and fees are held.
Full rate lock. The all-in rate is fixed. Fannie Mae's rate lock periods are 180 days or less, and its small loans offer 30- to 180-day commitments.

A lock is a commitment in both directions. If you fail to close, you can owe breakage. On Freddie Mac fixed-rate Index Locks, breakage is subject to a 0.5% minimum and 3.0% maximum of the rate-locked amount, and the loan amount can drop by up to 10% without triggering it. Ask every lender for its lock terms in writing before you sign the application.

Why two quotes on the same building differ

Before you compare rates, make sure you are comparing the same loan. Quotes commonly differ on:

Index tenor. A 7-year loan priced off a 7-year Treasury and a 10-year loan priced off a 10-year are not comparable rates.
Prepayment. Yield maintenance versus a step-down can account for a meaningful part of a spread difference.
Interest-only and amortization, which change the payment and the balance at maturity.
Fees. One lender builds costs into the rate, another charges them upfront.
Floors. An index floor means the rate cannot fall below a set level even if the index does.
Day count. Interest calculated on an Actual/360 basis charges 365 days of interest at a 360-day rate, so the effective annual cost is the stated rate times 365/360. Freddie Mac's Conventional Small uses Actual/360 as standard; Fannie Mae offers 30/360 and Actual/360.
Loan amount. A quote at a lower loan amount than you need is a better rate on a different loan.
Firmness. An indicative quote is a starting point; a locked rate is a contract.

Put every quote into the term sheet comparison, which converts rate, fees, interest-only and prepayment into an effective annual cost over your expected hold.

Getting a quote you can rely on

A lender can only price what it can see. Send a current rent roll, trailing twelve-month operating statement, your requested amount, term and prepayment preference, and your track record. The more complete the package, the closer the first quote is to the final rate. The refinance checklist lists what to assemble.

Frequently asked questions

How are apartment refinance rates determined?

Each rate is a market index plus a lender spread. Fixed-rate loans are priced off the Treasury yield that matches the loan's term, and floating-rate loans off SOFR. The spread reflects leverage, debt service coverage, loan size, the property and market, the prepayment structure, interest-only, and the sponsor. The index is set by the market; the spread is set by your deal.

What index do apartment loans use?

Fixed-rate apartment loans usually use a U.S. Treasury yield with a maturity near the loan term, such as the 10-year Treasury for a 10-year loan. Floating-rate loans generally use SOFR, the Secured Overnight Financing Rate, which the Federal Reserve Bank of New York publishes daily along with 30-, 90- and 180-day averages. Your term sheet names the exact index.

Why is my quoted rate higher than another lender's?

Check whether the quotes are for the same loan. Differences in index tenor, prepayment structure, interest-only period, amortization, upfront fees, index floors, day count convention and loan amount all change the rate. A quote with a step-down prepayment schedule, for example, often carries a higher spread than one with yield maintenance. Compare effective cost over your hold, not just the coupon.

When should I lock my apartment loan rate?

Lock when the deal works at the current rate and a rate move would hurt it. Agency lenders offer spread locks, index locks and full rate locks at different stages. Fannie Mae rate lock periods are 180 days or less. Locking creates breakage risk if you fail to close, so read the lock agreement and confirm your loan amount and timeline first.

What does Actual/360 mean on my loan quote?

Actual/360 means interest accrues for each actual day in the year but the annual rate is divided by 360 days. Over a full year you pay 365 days of interest at a daily rate of the stated rate divided by 360, so the effective annual cost is the stated rate times 365/360. A 30/360 loan at the same stated rate costs slightly less.