How commercial mortgage rates are set: swap spreads, the factors lenders weigh, fixed vs floating rates and the rate outlook for 2026.
A commercial mortgage rate is the interest rate on a loan secured by commercial property, and it can be fixed or floating.
Fixed rates are priced as a spread over swap rates matched to the loan’s term, and the market rate plus the property’s risk set the final rate. The loan types themselves are covered in types of commercial real estate loans.
In short: rate = index + spread. The index is a market rate that moves every day. The spread is the lender’s charge for this property, this borrower and this loan structure.
What Sets a Commercial Mortgage Rate
A commercial mortgage rate is the market rate plus the lender’s view of the risk. Lenders weigh five things:
- Your credit score
- The loan term
- Market conditions, including inflation and Federal Reserve rates
- The loan-to-value ratio
- The property type and location
Each factor works through either the index or the spread.
| Factor | Moves the index or the spread? | How it shows up |
|---|---|---|
| Credit score and track record | Spread | Stronger sponsors get tighter pricing |
| Loan term | Index | A 5-year loan prices off a 5-year rate, a 10-year loan off a 10-year rate |
| Market conditions | Index | Treasury yields and SOFR change daily |
| Loan-to-value | Spread | More equity means less risk and a lower spread |
| Property type and location | Spread | Apartments and industrial often price tighter than hotels |
How a Commercial Rate Is Built: Index Plus Spread
Every commercial rate starts with an index that the lender cannot control. The lender then adds a spread for risk, costs and profit.
The Common Indexes
| Index | What it is | Used for | Level and date |
|---|---|---|---|
| 5-year Treasury | U.S. government yield, constant maturity | 5-year fixed bank loans | 4.85% on Oct. 28, 2026 (FRED) |
| 7-year Treasury | Same, 7-year maturity | 7-year fixed loans | 4.95% on Oct. 28, 2026 (FRED) |
| 10-year Treasury | Same, 10-year maturity | 10-year fixed CMBS and life company loans | 5.05% on Oct. 28, 2026 (FRED) |
| SOFR | Overnight cost of borrowing cash against Treasury collateral | Floating-rate bridge and construction loans | 3.94% on Oct. 28, 2026 (FRED) |
| Prime rate | Base rate posted by most of the 25 largest U.S. banks | Floating bank loans | 7.00% on Oct. 27, 2026 (FRED) |
| Swap rates | Fixed rate traded against floating SOFR | Fixed-rate bank loans and loan hedges | Quoted by banks daily |
These figures are a snapshot. Check FRED or your lender for the current level before comparing quotes.
The Federal Reserve Bank of New York publishes SOFR each business day, shortly before 8 a.m. Eastern. SOFR replaced LIBOR: the Federal Reserve noted that U.S. dollar LIBOR panels ended after June 30, 2023.
How Programs Write the Formula
Loan programs spell the formula out in their term sheets. Freddie Mac’s float-to-fixed apartment loan, for example, prices its fixed period as the 7-year Treasury plus a 7-year fixed spread plus 0.20%.
The floating period of the same loan is priced at 30-day average SOFR plus a spread plus 0.20%. Bank loans work the same way, though the spread is set loan by loan.
Worked Example: Building a Fixed Rate
Assume a bank offers a 5-year fixed loan and quotes a spread of 2.25 percentage points. The spread here is an example, not a market quote.
- Index: 5-year Treasury at 4.85% (October 28, 2026).
- Spread: 2.25%.
- Note rate: 4.85% + 2.25% = 7.10%.
If the Treasury yield rises 0.25% before the rate is locked, the note rate rises to 7.35%. That is why many lenders offer a rate lock or an index lock.
Fixed vs Floating Rates
A fixed rate locks the payment, while a floating rate moves with the market.
Adjustable rates often start lower but can change after an initial period. SBA 504 loans carry a fixed rate pegged above the 10-year Treasury.
| Feature | Fixed rate | Floating rate |
|---|---|---|
| Index | Treasury or swap rate at closing | SOFR or prime, reset monthly or daily |
| Payment | Same for the fixed period | Rises and falls with the index |
| Prepayment | Often a penalty, yield maintenance or defeasance | Usually lighter or none |
| Best for | Stabilized property held long term | Bridge, construction or a short hold |
| Main risk | Paying a penalty to exit early | A rate jump that cuts debt coverage |
Floating rates are the norm on short-term bridge financing and on loans that fund new buildings. Many lenders require a floating-rate borrower to buy an interest rate cap. The cap pays the borrower if the index rises above a set level.
Hybrid loans mix both. A common bank structure fixes the rate for five years, then resets it for a second five years off the index at that time.
How Lenders Price Risk: The Spread
The spread is where borrowers can negotiate. Lenders widen it for anything that raises the chance of loss.
- Leverage: a 55% LTV loan usually prices tighter than a 75% LTV loan; see how lenders measure loan-to-value.
- Debt coverage: strong coverage, explained in how lenders test debt coverage, lowers the spread.
- Property type: stable apartments and industrial buildings price tighter than hotels or single-tenant special-use buildings.
- Recourse: a personal guarantee can lower the spread on a bank loan.
- Prepayment flexibility: a loan that can be paid off freely usually carries a higher rate.
- Loan size: small loans carry fixed lender costs, which can push the spread up.
Prepayment Terms Trade Against the Rate
A lender that can count on interest through maturity can charge a lower rate. So prepayment protection and the rate move in opposite directions.
| Prepayment type | How it works |
|---|---|
| Step-down | A falling percentage of the balance, such as 5-4-3-2-1 over five years |
| Yield maintenance | Present value of remaining payments times the gap between the note rate and a matching Treasury yield |
| Defeasance | The borrower buys Treasury securities that replace the property as collateral |
| Open | No penalty, usually with a higher rate |
What each one costs at payoff is worked through in the cost of paying off a loan early.
How the Rate Changes Your Payment and Leverage
The rate sets the loan constant: the annual payment as a percentage of the loan. Compare it with the property’s cap rate to see whether debt helps or hurts the return.
Worked example (illustrative rates): a $2,000,000 loan with 25-year amortization.
| Note rate | Monthly payment | Annual payment | Loan constant |
|---|---|---|---|
| 6.25% | about $13,193 | about $158,300 | 7.92% |
| 7.10% | about $14,263 | about $171,200 | 8.56% |
| 7.35% | about $14,585 | about $175,000 | 8.75% |
A 0.25% rate change moves this payment by about $3,800 a year. On a building with tight coverage, that alone can shrink the maximum loan.
When the loan constant is below the cap rate, leverage is positive and debt raises the cash return. When it is above, leverage is negative and each borrowed dollar lowers the cash return. The full calculation is in how leverage affects cash-on-cash return.
Commercial Rates in 2026
In 2026, rates remain high enough to shape most deals.
RMCRE’s Durango outlook expected the Federal Reserve to cut rates twice in 2026, with the 10-year Treasury stable and borrowing costs still above 2010-2021 levels. Buyers with strong balance sheets and existing bank relationships have an edge. To see the effect on a loan, read how rates change debt service coverage.
FRED data show the backdrop. The Federal Reserve’s target range for the federal funds rate was 3.75% to 4.00% on October 29, 2026. The 10-year Treasury averaged about 4.36% in 2026 through October 28, then closed that day at 5.05%.
Short rates sit below long rates. SOFR was 3.94% while the 10-year Treasury was 5.05% on October 28, 2026. That gap makes floating-rate loans cheaper today than 10-year fixed loans, at the cost of rate risk.
The Fed’s July 2026 Senior Loan Officer Survey found banks easing standards for nonfarm nonresidential and apartment loans. Construction loan standards were basically unchanged.
Colorado Cap Rates Against Today’s Loan Constant
Colorado mountain markets show both sides of leverage. The table compares RMCRE’s 2026 market update cap rates with the 8.56% loan constant from the example above.
| Market | 2026 cap rate (RMCRE market update) | Leverage at an 8.56% constant |
|---|---|---|
| Aspen | 4.5% to 6.0% (2026 YTD) | Negative |
| Steamboat Springs | 6% (June 2026 YTD) | Negative |
| Chaffee County (Salida, Buena Vista) | 6.5% (Q2 2026) | Negative |
| Grand Junction / Mesa County | 7.0% (Q2 2026 YTD) | Negative, but closer |
| Montrose | 8% (Q2 2026) | Close to neutral |
In resort towns, buyers often pay mostly cash or plan rent growth to justify the price. RMCRE’s Steamboat Springs mid-2026 report shows the 6% cap rate behind that math.
Costs Beyond the Interest Rate
Two loans with the same rate can cost very different amounts. Compare the full cost, not only the note rate.
- Origination fee or points: a percentage of the loan charged at closing.
- Third-party reports: appraisal, environmental report, property condition report and survey, usually paid by the borrower.
- Legal fees: the lender’s attorney often bills the borrower for loan documents.
- Rate lock or index lock fees: some lenders charge to hold a rate during underwriting.
- Exit costs: prepayment penalties, yield maintenance or defeasance at payoff.
- Reserves: required escrows for taxes, insurance, repairs or leasing tie up cash.
A slightly higher rate with no prepayment penalty can be the cheaper loan for a short hold. A lower rate with yield maintenance can be cheaper for a full-term hold. Ask each lender for a written term sheet so the quotes line up.
How to Get a Better Rate
Borrowers cannot move the index, but they can narrow the spread.
- Ask several lender types. Banks, credit unions, SBA lenders, life companies and CMBS lenders price risk differently.
- Lower the leverage. A bigger down payment often earns a tighter spread.
- Show clean numbers. Two or three years of operating statements and a current rent roll speed underwriting.
- Match the term to the plan. A 10-year fixed rate makes little sense for a 3-year hold.
- Trade prepayment for price only if you will hold. Yield maintenance can lower the rate but is costly if rates fall.
- Bring the deposit relationship. Many Colorado community banks price better for borrowers who move their operating accounts.
Frequently Asked Questions
What is a good commercial mortgage rate right now?
A good rate is one close to the index plus the lowest spread the property can earn. As of October 28, 2026, the 5-year Treasury was 4.85% and the 10-year was 5.05%, per FRED. Compare quotes on the same term, amortization and prepayment terms.
Why are commercial mortgage rates higher than home loan rates?
Commercial loans are smaller in number, less standardized and harder to sell to investors than home loans. Lenders add a spread for property income risk, leverage and loan size. The index and spread are also set loan by loan rather than by a national program.
Do commercial mortgage rates follow the Federal Reserve?
Floating rates follow the Fed closely, because SOFR and prime track the federal funds rate. Fixed rates follow Treasury yields, which can move differently. On October 28, 2026, SOFR was 3.94% while the 10-year Treasury was 5.05%.
How long can a commercial mortgage rate be locked?
Lock terms vary by lender and are set in the application or commitment. Some programs offer an index lock during underwriting, such as Freddie Mac’s Index Lock, which fixes the Treasury part of the coupon. Ask about the cost and the expiry date before paying for a lock.
Is a fixed or floating rate better for commercial property?
A fixed rate suits a stabilized building held for the full term, since the payment cannot rise. A floating rate suits a short hold, a bridge loan or a construction loan, where flexibility matters more. Floating borrowers often need a rate cap.
Comparing Lenders Through RMCRE
An RMCRE affiliate runs a loan marketplace with relationships across more than 1,000 lenders and 600,000 loan programs. See the lenders who work with RMCRE brokers.
Rocky Mountain Commercial Real Estate is a network of partner brokers across Colorado mountain towns, working since 2010. We help buyers test a purchase price against current rates before they make an offer. To run the numbers on a property, ask an RMCRE investment broker.
