By Trevor Damyan, Commercial Mortgage Broker at Commercial Lending Solutions
Fixed rate and floating rate are the two interest rate structures available on commercial real estate loans. Fixed rate locks the coupon for the term of the loan, providing certainty against rate movement at the cost of a structural premium and yield-maintenance prepayment exposure. Floating rate prices off SOFR or Prime plus a spread, moving with the market. Floating costs less at origination if the curve is downward sloping, costs more if the curve is upward sloping, and exposes the borrower to rate risk that can be partially mitigated with caps and swaps. The right answer depends on hold horizon, cost of capital tolerance, prepayment flexibility needs, and the sponsor's view on forward rates.
Get Quotes from Both →Rate ranges reflect indicative pricing as of April 2026, sourced from active CLS CRE quote pipeline. Pricing is property, sponsor, and structure dependent.
Fixed rate wins on stabilized assets with long hold horizons where the sponsor prioritizes cash flow predictability and is willing to pay a rate premium for certainty. Most agency multifamily, life co, and CMBS executions are fixed rate by default, and the structural products are built around that.
Floating rate wins on transitional and value-add deals with short hold horizons, where the prepayment flexibility is required for the planned exit, and where the curve is upward sloping making floating cheaper at origination than fixed. Bridge debt fund execution is almost always floating, as is most bank construction and bank balance sheet bridge.
Start with the hold horizon. If the sponsor's plan is to hold for 5+ years, fixed rate is almost always the right structure regardless of the current curve shape. If the plan is to hold for 12 to 36 months, floating rate is almost always the right structure. The middle case (3 to 5 years) requires running both with sensitivity to forward rate scenarios.
Calculate the prepayment cost in the bear case. Yield maintenance on a 10-year fixed loan in a falling rate environment can be 8 to 15 percent of the unpaid principal balance, which is a meaningful tax on the optionality of refinancing or selling early. If the sponsor has a 30 percent or higher probability of refinancing or selling within 3 to 5 years, the YM exposure may erode the fixed-rate pricing advantage.
Evaluate the hedge cost on floating. Lenders almost universally require a rate cap on floating-rate debt with a strike near current SOFR levels. A 3-year SOFR cap with a 5 percent strike on a $20M loan typically costs $200K to $400K depending on volatility and term. The cap cost is a real cost of floating rate execution and should be included in the comparison math.
Consider the curve shape. If the SOFR curve is upward sloping, floating today is cheaper than fixed today, but expected to converge over the term. If the curve is downward sloping (forward rates expected to fall), floating today is more expensive than fixed today, but expected to fall over the term. The forward curve is the market's collective forecast and should not be aggressively contradicted, but sponsors with a clear view can use the curve shape to make a case for one product over the other.
On a $32M Class B multifamily acquisition in a Sun Belt MSA with a 24-month value-add plan and a planned refinance into agency at stabilization, the question was whether to use a 10-year fixed bridge product or a floating-rate bridge debt fund. The fixed-rate bridge quote came back at 6.95 percent fixed 10-year with yield maintenance and standard agency-style intercreditor. The floating-rate bridge debt fund quote came back at SOFR + 425 (8.95 percent all-in at the time) with an 18-month interest reserve, a 24-month initial term, two 12-month extensions, and full prepayment flexibility after month 12. Despite the 200 basis point higher coupon, the floating rate execution was the right choice because the planned refinance at year 2 would have triggered approximately 8 percent of YM on the fixed quote (about $2.5M of prepayment expense), whereas the floating quote allowed clean prepayment after month 12 with only the unaccrued interest reserve forfeited. The math: $2.5M of YM versus 24 months of higher coupon (approximately $1.3M of additional interest) made floating the better structure.
All deal references anonymize borrower and lender identities and use city-level geography only.
Fixed versus floating is mostly a question of hold horizon, not rate view. Five-plus year hold? Fixed. Twelve to 36 month hold? Floating. The middle ground is where you actually need to run the math.
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