The quick read: On a floating-rate loan, the lender picks the rate that goes into the coverage test: the actual rate (index plus spread), the cap strike plus the loan's margin, or a stress rate. A rise in SOFR cuts your proceeds only if it pushes the actual rate above whatever rate the lender tests. SOFR was 3.62% on September 16, 2026, 3.85% the next day after the Federal Reserve raised its target range by a quarter point, and 3.88% on October 20, 2026, according to the Office of Financial Research's series. Ask every lender which basis it uses before you compare loan amounts.
Which rate goes into the coverage test on a floating-rate loan?
The rate that goes into a floating-rate coverage test is whichever one the lender's program names: the current index plus spread, the cap strike plus the loan's margin, or a stress or fixed-rate equivalent, and that choice decides whether a SOFR increase touches your loan amount at all.
The DSCR is net operating income divided by annual debt service, so the rate used to compute debt service sets the ceiling on the loan. The published programs show all three bases:
Cap strike plus margin. Fannie Mae's Multifamily Selling and Servicing Guide (effective September 28, 2026), Section 1102, sizes a Structured ARM loan at a Maximum Note Rate equal to the minimum Cap Strike Rate set by Fannie Mae plus the loan's margin (investor spread, guaranty fee and servicing fee), with the debt service constant built on an amortizing payment.
A fixed-rate test alongside it. The same section caps the loan at the lesser of the amount from the minimum DSCR at that Maximum Note Rate, the amount from a Fixed Rate Test described in Fannie Mae's Form 4660, and the maximum loan-to-value ratio.
A stress rate. The OCC's Comptroller's Handbook on commercial real estate lending (Version 2.0, March 2022) tells banks that capitalization rates, interest rates and DSCRs should be stress-tested to judge whether a property can stay viable in a downturn, and warns that floating-rate debt against fixed rents can erode repayment capacity as rates rise.
Bank and debt-fund programs set their own conventions, and no public standard tells you which one a given lender uses. Ask in writing.
When does a SOFR increase actually cut your loan proceeds?
A SOFR increase cuts your loan proceeds only when the lender sizes on the actual rate, or when the higher index pushes the actual rate above the strike-based or stress rate the lender tests, so the same quarter-point move can cost one borrower real dollars and leave another borrower's loan amount unchanged.
The September move shows the scale. These are daily readings from the Office of Financial Research's SOFR series:
SOFR, September 16, 2026 (Office of Financial Research): 3.62%
SOFR, September 17, 2026 (Office of Financial Research): 3.85%
SOFR, October 20, 2026 (Office of Financial Research): 3.88%
Federal funds target range after the September 16, 2026 decision (Federal Reserve): 3-3/4 to 4 percent
Index on Freddie Mac floating-rate loans (term sheet 4/26): 30-day Average SOFR
The Federal Open Market Committee's September 16, 2026 statement raised the target range by 1/4 percentage point. Daily SOFR stepped up 23 basis points the next day (our arithmetic). Both agency programs cited here reset on 30-day Average SOFR rather than the daily print; Fannie Mae's Guide defines 30-Day Average SOFR as a compounded average of SOFR over a 30-day interest period, so the index catches up over the following month rather than overnight. On October 28, 2026, the Federal Reserve held its target range at 3-3/4 to 4 percent; two dissenting voters preferred another quarter-point increase. Re-read the index on the day your loan is sized and again at rate lock.
How does a lower cap strike buy more loan proceeds?
A lower cap strike buys more loan proceeds because a strike-based test computes debt service at the strike plus the margin, so dropping the strike lowers the sizing rate and raises the loan the same income can carry, while the cap itself costs more to buy the further the strike sits below the market.
Fannie Mae's Guide, Section 1105.02, puts that trade in writing: the Cap Strike Rate plus the guaranty fee, servicing fee and investor spread must be at or below the rate, on an amortizing debt service constant, that produces the minimum required DSCR. A larger loan needs a lower strike to pass.
Every input below is an illustrative assumption, not a quote: $2,000,000 of net operating income, a 1.25x minimum DSCR, a 2.25% spread and 30-year amortization. Two rows use the actual SOFR readings above.
| Test basis (illustrative) | Rate used | Annual payment constant | Maximum loan at 1.25x (our arithmetic) |
|---|---|---|---|
| Test basis (illustrative) Actual rate, SOFR 3.62% (Sept 16, 2026) plus 2.25% | Rate used 5.87% | Annual payment constant 7.09% | Maximum loan at 1.25x (our arithmetic) About $22,552,000 |
| Test basis (illustrative) Actual rate, SOFR 3.88% (Oct 20, 2026) plus 2.25% | Rate used 6.13% | Annual payment constant 7.30% | Maximum loan at 1.25x (our arithmetic) About $21,932,000 |
| Test basis (illustrative) Cap strike 3.50% plus 2.25% | Rate used 5.75% | Annual payment constant 7.00% | Maximum loan at 1.25x (our arithmetic) About $22,848,000 |
| Test basis (illustrative) Cap strike 4.00% plus 2.25% | Rate used 6.25% | Annual payment constant 7.39% | Maximum loan at 1.25x (our arithmetic) About $21,655,000 |
| Test basis (illustrative) Cap strike 5.00% plus 2.25% | Rate used 7.25% | Annual payment constant 8.19% | Maximum loan at 1.25x (our arithmetic) About $19,545,000 |
| Test basis (illustrative) Stress rate (assumed) | Rate used 7.50% | Annual payment constant 8.39% | Maximum loan at 1.25x (our arithmetic) About $19,069,000 |
Three readings follow. On an actual-rate test, SOFR's rise from 3.62% on September 16 to 3.88% on October 20 cost about $620,000 of proceeds on this example. On a 4.00% strike test, the same rise changed nothing, because the strike, not the index, sets the sizing rate. And moving the strike from 4.00% to 3.50% adds about $1,193,000 of capacity (all our arithmetic), which you pay for in a more expensive cap.
The cap is not a one-time cost. Fannie Mae's Section 1105 requires a minimum 5-year cap term on a Structured ARM and, when the initial cap is shorter than the loan, a fully funded reserve of at least 110% of the current replacement cap cost. Price the strike and the replacement reserve together before you chase proceeds.
What do agency floating-rate loans require?
Agency floating-rate loans require an interest rate cap or hedge, kept for the entire term on Fannie Mae's Structured ARM, and test coverage on an amortizing payment even during interest-only periods, which means an interest-only floater is still sized as if principal were being paid, and the cap's strike and term become part of the loan approval.
Freddie Mac's Optigo floating-rate term sheet (4/26) lists the terms:
Minimum loan (Freddie Mac, 4/26): $10 million
Terms (Freddie Mac, 4/26): 5, 7 and 10 years
Minimum amortizing DCR (Freddie Mac, 4/26): 1.25x
Maximum LTV, 5-year to under 7-year term (Freddie Mac, 4/26): 75%
Maximum LTV, 7-year and longer terms (Freddie Mac, 4/26): 80%
Interest-only DCR (Freddie Mac, 4/26): calculated on an amortizing payment
Early rate-lock (Freddie Mac, 4/26): typically 60 to 120 days
Refinance test waived (Freddie Mac, 4/26): at a 1.40x amortizing DCR and 60% LTV or less
Freddie Mac's Multifamily Guide glossary (Guide Bulletin Update 10/20/26) says floating-rate mortgages must carry either a Freddie Mac internal interest rate cap or a third-party interest rate hedge, and that a floating-rate rate lock holds the spread (a Spread Rate Lock) rather than the index. The term sheet does not print the rate Freddie Mac uses in the DCR, so ask your lender which one it will run.
Fannie Mae's Structured ARM, per its Guide Section 1101, starts at a $25 million minimum, runs 5 to 10 years on 30-Day Average SOFR, and requires an interest rate cap for the entire term. Smaller and transitional floaters, including bridge loans, sit outside these programs, and their test rate comes from each lender's own credit policy, which makes it worth negotiating.
How do you get a floating-rate loan placed with the right lender?
You get a floating-rate loan placed by asking every lender the same three questions, which rate it tests, which cap strike and term it requires, and what the replacement reserve costs, then comparing proceeds and all-in carry on one sheet instead of the headline spread. YieldStack is an AI-native commercial mortgage brokerage that arranges financing for commercial real estate investors.
Brokerage option, listed first. YieldStack's software matches the deal against a catalog of 20,000+ loan programs. Human brokers then structure the request, negotiate the test rate, strike and reserve terms for the borrower, and carry the transaction toward closing. That matters here because two quotes with the same spread can size the same property very differently. 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 to send:
- Trailing 12-month operating statement and current rent roll
- Target loan amount, term and whether you want interest-only
- The cap strike and term you can afford, or a request for quotes at two strikes
- Your business plan: hold, renovate, or refinance into fixed-rate debt later
- Any existing cap agreement and its expiration date
Before you send, run your own coverage at the actual rate and at a stress rate in the DSCR calculator. For short-term floaters, the bridge loan carry-cost guide shows how the rate and fees add up. When the package is ready, send the deal for review. 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.
The bottom line
Lenders size a floating-rate loan at the rate their program names: the actual index plus spread, the cap strike plus margin, or a stress or fixed-rate test. SOFR's move from 3.62% to 3.88% between September 16 and October 20, 2026 cut proceeds only where the actual rate is the test. Ask which basis applies, then price the cap strike and reserve as part of the loan.