A loan whose interest rate resets on a schedule to an index, such as prime or SOFR, plus a fixed spread, so the payment can rise or fall over the term.
Four terms define an adjustable rate: the index, the spread added to it, how often the rate resets, and any floor or ceiling. If a loan is priced at an index plus 2.75 percentage points and the index rises from 4 to 5 percent, the rate goes from 6.75 to 7.75 percent at the next reset.
The OCC’s handbook tells banks to stress-test interest rates and coverage on income property, so a lender may figure coverage at a rate above the starting one.
SBA’s rule for variable rate 7(a) loans shows the parts. The first change may come on the first day of the month after the first disbursement, and later changes no more often than monthly. The note must name the base rate, where it is published, the spread, the starting rate and the timing of adjustments. The loan manual says loans are typically re-amortized at each change so they still pay off by maturity, and that many lenders adjust quarterly.
Larger floating rate loans may require a hedge. Fannie Mae’s structured adjustable rate loans require the borrower to buy an interest rate cap from a third party, with a term of at least five years.
How it shows up in the data here
Partly public. HMDA rows carry the months until a loan's rate can first change, but this site does not show that field. Loan comps prints the median reported rate by lender for multifamily loans made, and credit unions report one average rate on real-estate-secured commercial loans. No file here says how often a loan resets. Test a rate change in the SBA 7(a) payment calculator.
Go further
- SBA 7(a) payment calculator: Monthly payment on a 7(a) loan from terms you enter.
- Multifamily loan comps: Multifamily loans made, with median reported rate and term by lender.
- SBA 7(a) payment calculator: Monthly payment with the FY2027 upfront guaranty fee, with the fee paid in cash or added to the loan.
- Amortization and balloon calculator: Payment, balance at maturity and interest paid, for a loan that amortizes over longer than it runs.
- SBA 7(a) or 504: which fits your loan: Both are SBA loans, and they work differently. The choice usually turns on what you are buying and how much cash you can put in.
- How bankers evaluate a commercial loan deal: A credit officer asks one question five ways: how will this loan be repaid, and what happens if it is not? Knowing the five tests lets you size a request before you send it.
Related terms
- Fixed rate loan: A loan whose interest rate is set at closing and does not change for a stated period, often the whole term, so the principal and interest payment stays the same.
- Spread (margin over an index): The fixed number of percentage points a lender adds to an index, such as prime or SOFR, to set a loan's interest rate.
- SOFR (Secured Overnight Financing Rate): A daily benchmark interest rate, published by the Federal Reserve Bank of New York, that measures the cost of borrowing cash overnight against Treasury securities.
- Prime rate: A base rate banks post for pricing short-term business loans. The Federal Reserve reports it as the rate posted by a majority of the 25 largest U.S. commercial banks.
- Rate floor: The minimum interest rate a variable rate loan can charge. When the index plus the spread falls below the floor, the borrower pays the floor.
- SBA 7(a) loan: SBA's main business loan program. A lender makes the loan and SBA guarantees part of it: up to 85 percent of $150,000 or less and 75 percent of more, on loans up to $5,000,000.
Sources
- 13 CFR 120.214, conditions for variable interest rates, retrieved .
- SBA SOP 50 10 8.1, Appendix 18, 7(a) Interest Rate Requirements (Frequency of Interest Rate Adjustment; Interest Rate Requirements for an SBA Note), effective .
- Fannie Mae Multifamily Guide, Part III, Chapter 11, Sections 1101 and 1105, Structured ARM Loans and Interest Rate Caps, retrieved .
- OCC Comptroller's Handbook, Commercial Real Estate Lending, Version 2.0 (Income-Generating Capacity of CRE, stress testing, p. 42), published .
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.