How is the interest rate fixed on a CMBS conduit loan? In the loan Term Sheet, under Interest Rate, the provision indicates the interest rate will be set by adding the loan “spread” (expressed in basis points; i.e., “250 basis points”) to the Swap Rate with the same term as the loan. If the loan is 10 years, the Swap Rate utilized is the 10-year Swap Rate. The 10-year Swap Rate can be found on the bottom of the home page at valuexpress.com. If the 10-year Swap Rate is 1.50%, then the interest rate on the loan would be 4.00% (the spread of 250 basis points, or 2.50%, plus the Swap Rate of 1.75% = 4.00%). The rate is fixed for 10 years.
When is the interest rate fixed on a CMBS conduit loan? The interest rate is fixed on the day of closing using the method outlined above. On the day of closing, the 10-year Swap Rate on that day is added to the loan “spread” listed in the Term Sheet and the interest rate is fixed for 10 years. Sometimes borrowers are concerned that the 10-year Swap Rate can rise during loan underwriting and closing. The 10-year Swap Rate can be “locked” before closing once the appraisal has been completed and on the payment of a 2% refundable Swap Rate lock deposit. However, most borrowers opt for having ValueXpress complete the loan underwriting and closing process as quickly as possible to minimize potential Swap Rate movement.