Interest Rate Cap Calculator
Price an interest rate cap on SOFR with Black or Bachelier caplet pricing, level or amortizing notionals, and a strike comparison table.
Floating-rate apartment debt, especially bridge loans, usually requires an interest rate cap. If the floating index sets above the strike, the cap provider pays the difference, putting a ceiling on debt service. Lenders size the required strike so the deal still covers at the cap, and the upfront premium is a real closing cost worth estimating early.
This tool prices a SOFR cap as a strip of caplets on a forward curve you can edit. The Black model quotes volatility in percent; the Bachelier model quotes it in basis points and handles very low or negative rates. The strike table shows how the premium moves as you buy the strike up or down, which is the trade-off behind every cap quote.
Cap premium estimate
SOFR forward curve (%)
Estimates only; dealer quotes and loan documents control. Strike comparison and per-caplet detail below.
| Strike | Premium | bp of notional |
|---|
| Caplet | Expiry | Forward | Notional | Value |
|---|
How caps are priced.
A cap is a strip of caplets, one per reset period. Each caplet is an option on the forward rate for its period, priced here with the Black or Bachelier formula on simply compounded Actual/360 forwards derived from the curve you enter. Amortizing notionals follow a standard mortgage amortization schedule built from the note rate and amortization term, so the hedge tracks the loan balance.
Real dealer quotes use a volatility term structure with skew rather than a single flat number, and include credit and execution spread. Required cap terms, including strike, term, and notional schedule, come from the loan agreement. Use this to frame a budget and sanity-check quotes, then confirm with a live desk. Related tools: the defeasance calculator and yield maintenance calculator for fixed-rate exits.
Replacing a rate cap to extend a floating-rate loan
Most floating-rate bridge loans require a rate cap for the initial term, and most extension options require you to buy a new one, or extend the existing one, covering the extension period. The cost of that replacement cap is often the largest single cost of extending, and it is easy to underestimate when the original cap was bought in a calmer rate market.
What the lender usually requires
Requirements come from your loan agreement, so read the extension section before you price anything. Typical conditions include:
- A cap covering the full extension term, in place before the extension takes effect, from a counterparty meeting the lender's credit rating requirements.
- A strike set by formula, often the higher of the original strike and a strike at which the property still meets a stated DSCR test at the capped rate. If NOI has not grown, that test can force a lower, more expensive strike.
- A notional amount equal to the outstanding loan balance, or a schedule that follows it.
- Other extension conditions alongside the cap: an extension fee, no default, and often a minimum DSCR or debt yield. Missing any one can block the extension regardless of the cap.
How to price it before you need it
Price the replacement cap months ahead of the extension date with the calculator above, using the strike and term your loan agreement requires and a SOFR forward curve consistent with current market levels. Then run a strike comparison: the table shows how much the premium falls if the lender will accept a higher strike, which is worth negotiating if the property's coverage supports it.
Some owners ask the lender to escrow toward the replacement cap from monthly cash flow during the initial term. Where the loan already requires such an escrow, check that the balance will cover the premium you just priced.
When extending is the wrong answer
Add the cap premium to the extension fee and the higher floating-rate interest you will pay during the extension, then compare that total with refinancing out of the bridge loan now. If the property is stabilized enough to support permanent debt, a fixed-rate takeout may cost less than another year of capped floating debt. The bridge-to-agency takeout test shows whether it is. For the full set of choices at maturity, including negotiating terms and paying down to qualify, see apartment loan extensions and refinancing a bridge loan.