The quick read: there is no single commercial construction loan rate in September 2026, because almost every construction loan floats as an index plus a spread the lender sets deal by deal. The indexes are public: as of 2026-09-21, FRED's Bank Prime Loan Rate series (DPRIME) reads 7.00% and its Secured Overnight Financing Rate series (SOFR) reads 3.85%. Both moved after the Federal Reserve's 2026-09-16 statement, in which the Committee "decided to raise the target range for the federal funds rate by 1/4 percentage point to 3-3/4 to 4 percent." Banks and credit unions usually quote over prime; debt funds and larger balance-sheet lenders usually quote over SOFR. Your all-in construction rate is that index on the day interest accrues, plus a spread driven by leverage, sponsor experience, pre-leasing or pre-sales, and the market. Because the index resets while you draw, the hike raises carry on every dollar already funded and on every dollar still to come, and the interest reserve is what absorbs it.
Bank prime loan rate: 7.00% as of 2026-09-21 (FRED, DPRIME).
Secured Overnight Financing Rate: 3.85% as of 2026-09-21 (FRED, SOFR).
Federal funds target range: 3-3/4 to 4 percent, set 2026-09-16 and effective 2026-09-17 (Federal Reserve).
Refresh cadence: this page is re-read against FRED and re-stamped monthly at the same URL.
How are commercial construction loan rates actually set in September 2026?
A commercial construction loan rate is built from two parts, a floating index that anyone can look up on FRED and a spread that the lender prices against your specific deal, so the useful question is never "what is the rate" but "which index, and what spread over it." Construction debt almost always floats.
The index does the moving. Prime is the base rate most banks use for business lending, and FRED's DPRIME page describes it as the rate "posted by a majority of top 25 (by assets in domestic offices) insured U.S.-chartered commercial banks" and "one of several base rates used by banks to price short-term business loans." SOFR is the overnight rate for borrowing collateralized by U.S. government securities; Wikipedia's SOFR entry explains that it "uses actual costs of transactions in the overnight repo market" and is calculated and published by the New York Federal Reserve. The same entry notes that the LIBOR Act established SOFR as a default replacement rate for LIBOR contracts, which is why institutional floating-rate debt now references it.
The spread does the pricing. It is not a public number, it is not published by any data service we can cite, and it is not the same on two deals from the same lender. What we can describe is the practice: the lender starts from its cost of funds and target return, then adds or subtracts for leverage, the sponsor's completed-project history, how much of the building is pre-leased or pre-sold, the guaranty package, the product type and the market. Wikipedia's commercial mortgage entry notes that "interest rates for commercial mortgages may be fixed-rate or floating rate"; for ground-up construction, floating is the norm because the balance itself is moving.
If you want the live index tape alongside other benchmarks, the YieldStack rates page tracks the series this page reads.
What did the 2026-09-16 Fed hike do to prime and SOFR?
The Federal Reserve raised the federal funds target range by 1/4 percentage point on 2026-09-16, effective the next day, and both construction indexes followed within one business day: FRED shows prime stepping from 6.75% to 7.00% and SOFR from 3.62% to 3.85%. Every floating construction loan reset with them.
The Fed's implementation note for the meeting directed the Desk to "maintain the federal funds rate in a target range of 3-3/4 to 4 percent," effective 2026-09-17, and raised the interest paid on reserve balances to 3.90 percent. Prime is mechanically tied to that decision. Wikipedia's prime rate entry states that "in the United States, the prime rate runs approximately 300 basis points (or 3 percentage points) above the federal funds rate," and the new 7.00% prime sits exactly three points over the 4.00% top of the new range.
SOFR is a market rate rather than a posted one, so it tracks the range without being pinned to it. FRED's series shows 3.64% on 2026-09-15, 3.62% on 2026-09-16, then 3.85% on 2026-09-17, where it held through 2026-09-21. That 23-basis-point step is close to the Fed's quarter point but not identical, which is the practical difference between the two indexes: prime moves in posted steps on decision days, SOFR moves daily with overnight funding conditions.
| Index | Before the hike | After the hike | Source and as-of |
|---|---|---|---|
| Bank prime loan rate | 6.75% (2026-09-16) | 7.00% (2026-09-17 to 2026-09-21) | FRED DPRIME, read 2026-09-22 |
| SOFR | 3.62% (2026-09-16) | 3.85% (2026-09-17 to 2026-09-21) | FRED SOFR, read 2026-09-22 |
| Federal funds target range | Below 3-3/4 to 4 percent | 3-3/4 to 4 percent, effective 2026-09-17 | Federal Reserve statement, 2026-09-16 |
Any construction rate you were quoted before 2026-09-17 was priced off the old index. Re-run it.
Which lender types price construction loans off which index?
Banks and credit unions generally quote construction loans over prime or, on larger loans, over SOFR; debt funds and other institutional non-bank lenders almost always quote over SOFR, often with a floor and a required rate cap. The table shows how each lender type typically structures the float and what moves its spread.
| Lender type | Index (as of 2026-09-21) | Typical structure | What moves the spread |
|---|---|---|---|
| Community or regional bank | Prime, 7.00% (FRED DPRIME); some use SOFR, 3.85% | Floating over prime, recourse, deposit relationship often expected, interest-only during construction | Sponsor liquidity and net worth, guaranty strength, depository relationship, loan-to-cost |
| Larger national or super-regional bank | SOFR, 3.85% (FRED SOFR) | Floating over SOFR, recourse or partial recourse, completion guaranty, interest-only | Deal size, pre-leasing or pre-sales, sponsor track record, overall bank appetite for the asset class |
| Credit union | Prime, 7.00%, or SOFR, 3.85% | Floating, usually smaller balances and a narrower product menu | Membership relationship, collateral type, local market |
| Debt fund or other non-bank institutional lender | SOFR, 3.85% (FRED SOFR) | Floating over SOFR, index floor common, purchased rate cap often required, higher leverage available, extension options | Leverage, business-plan risk, cap cost, exit clarity, fund's cost of capital |
| Private or hard-money lender | Often fixed for the term, or prime-based | Short term, points at closing, interest reserve funded from proceeds | Speed, leverage, borrower experience, collateral quality |
Two cautions on reading this table. First, the index levels are FRED readings for 2026-09-21 and will change; the structure column describes common practice, not a market survey. Second, the lender type matters less than the lender's current appetite, because two banks using the same index can still price the same deal at materially different spreads. For how each product is underwritten beyond the rate, see YieldStack's construction loan overview.
How much does a quarter-point index move add to construction carry?
A quarter-point rise in the index adds 0.25% a year on whatever balance is outstanding, so on a construction loan the cost scales with the drawn balance rather than the full commitment, which makes it smaller early in the build and larger near completion. The arithmetic below is illustrative, not a quote.
Construction loans fund in draws, and interest accrues only on money that has been advanced. That is why lenders size carry off an average outstanding balance rather than the commitment. Take an illustrative $10,000,000 commitment on an 18-month build, with an average outstanding balance of $6,000,000 across the term.
Illustrative commitment: $10,000,000.
Illustrative average drawn balance: $6,000,000 over 18 months.
Added annual interest from a 0.25-point index move on that balance: $15,000 (0.25% x $6,000,000).
Added interest over the 18-month build: $22,500 ($15,000 x 1.5).
Added annual interest once fully drawn: $25,000 (0.25% x $10,000,000).
Those figures are spread-independent: whatever margin your lender charges, the index move passes straight through. They are also the reason the sequence of draws matters. A project front-loaded with land and site work carries more balance for longer, so the same index move costs more than on a project whose vertical draws land late. How the draw schedule is built, and how inspections gate each advance, is covered in how a commercial construction draw schedule works.
How does an interest reserve absorb a rate increase mid-construction?
An interest reserve is a line in the construction budget, funded from loan proceeds, that pays monthly interest while the building produces no income, so a mid-construction rate increase draws the reserve down faster rather than landing on your bank account immediately. If the reserve runs dry before completion, the shortfall becomes your cash.
Reserves are standard in commercial lending. Wikipedia's commercial mortgage entry notes that "lenders may require borrowers to establish reserves to fund specific items at closing, such as anticipated tenant improvement and leasing commission (TI/LC) expense, needed repair and capital expenditure expense, and interest reserves." On a construction loan, the reserve is sized at closing by projecting the draw schedule, applying the all-in rate at that time, and summing the monthly interest through completion and, often, lease-up.
That sizing assumes the index stays put. When it rises, three things happen in order. The monthly interest charge increases on the drawn balance. The reserve depletes faster than the budget projected. And, at some point, the lender's loan-balancing or "in balance" provision is tested: if the undisbursed loan funds, including the remaining reserve, no longer cover the cost to complete, the lender can require the borrower to deposit the difference before the next draw funds. In the illustrative example above, a quarter-point move consumes $22,500 of reserve that was budgeted for something else.
There are four ways to protect a project from that sequence:
- Size the reserve with a cushion by modelling the index a quarter to a half point above today's reading, not at today's reading.
- Buy or price a rate cap where the lender requires one, and understand that the cap cost itself is a budget line that rises when rates rise.
- Negotiate a reallocation right so contingency savings can refill the reserve without a loan modification.
- Watch the in-balance test on each draw, not only at completion, so a shortfall is known months before it becomes a capital call.
How do you get lenders competing for this construction loan?
You get lenders competing for a construction loan by putting the same complete package in front of several lender types at once, so each one prices the same deal against the same index on the same day, and the spreads become comparable instead of anecdotal. A single-bank process tells you one spread.
That is the service YieldStack provides. YieldStack is a commercial mortgage brokerage, not a lender. A borrower completes a 5-minute submit, the deal is matched against 20,000+ loan programs, and the platform aims to return a median offer in under an hour, from an institutional lender. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
What moves a construction quote most is completeness. Lenders price uncertainty, so a package that shows the budget with hard and soft costs separated, the draw schedule, the contractor contract type, entitlement status, pre-leasing or pre-sales, and the sponsor's completed-project history gives every lender less to price in. Submit your construction deal for lender quotes.
What should you ask each lender about the rate before you sign?
The rate you are quoted on a construction term sheet is only complete once you know the index, the reset frequency, the floor, the cap requirement and how the interest reserve is sized, because each of those decides how the loan behaves after a move like the 2026-09-16 hike. Ask every lender the same six questions.
- Which index, and which version of it? Prime as posted, daily SOFR, or term SOFR, and on what day each month it resets.
- Is there an index floor? A floor protects the lender if rates fall and means you do not fully benefit from a cut.
- Is a rate cap required, at what strike, and who buys it? The cap cost belongs in the budget and is itself rate-sensitive.
- How was the interest reserve sized? Ask for the assumed index and the assumed draw curve.
- What triggers a rebalancing deposit? Get the in-balance test in writing.
- What changes at extension? Many construction loans re-price or re-test coverage at each extension option.
The bottom line
In September 2026, construction loan rates are prime or SOFR plus a deal-specific spread, and the index half rose after the Federal Reserve's quarter-point increase on 2026-09-16. As of 2026-09-21, FRED shows prime at 7.00% and SOFR at 3.85%. Any quote dated before 2026-09-17 was priced off the old index and should be re-run.
The spread half is where borrowers win or lose. It is set by leverage, sponsor strength, pre-leasing and the lender's current appetite, and it is only visible by comparing lenders pricing the same package on the same day. Size the interest reserve for a higher index than today's, read the in-balance provisions, and treat the cap cost as part of the rate. This page is refreshed monthly at the same URL with the current FRED readings.
All dollar figures in this article are illustrative arithmetic on the cited index moves. They are not a quote, a term sheet, or a prediction of what any lender will offer on your project.