I’d like to get everyone to chime in on what loan terms they are seeing today in the market for the different property types you or your company is getting a mortgage on.
Interest rate? IO or fixed?
Index: LIBOR? Prime? 10Y treasury?
Are there any particular or interesting terms to look out for or take advantage of today with the speculation of interest rates going down? Is now a good time to get into IY swaps?
Also - is the 10 year treasury way more favorable index for the borrower than the prime rate? If everyone can give their 2 cents. Thanks.
Amid rising short-term rates and a pending recession, it has become evident that the debt market is changing rapidly. For the past several months, bridge loans have been the dominant structure with low rates and higher leverage. However, that seems to be changing. We are seeing bridge spreads widen significantly and many bridge lenders have largely pulled out of the market. And with SOFR expected to exceed 3.25% by year-end, most bridge loans will have rates approaching 7% (or higher) in the near future.
By contrast, full-leverage Agency fixed rates have stabilized in the 4.75% to 5.25% range, depending on the amount of affordability at the property. Both Fannie and Freddie have implemented some underwriting changes to try to push loan proceeds higher – either with extended amortization periods or lower DSCR requirements – for deals with significant affordability at 80% of AMI.
Additionally, Agency floating rate spreads remain in the low 200s for deals where prepayment flexibility is of utmost importance. The cost of SOFR caps has increased and will be a more significant cost in that equation. We are definitely seeing increased demand for floating rate loans primarily because of the desire for prepayment flexibility.
As we prepare for the normal end-of-year run, Agency financing will continue to be a stable and important option for multifamily finance.