Fixed vs. floating
A fixed rate stays the same for the whole term, so the borrower always knows the payment. A floating (variable) rate changes with a market benchmark, usually SOFR. Floating rates are common on short-term "bridge" and construction loans, where the lender needs flexibility and the borrower expects to refinance or sell before rates move much. Fixed rates are common on long-term permanent loans, where predictable cash flow matters more.
Fixed vs. floating at a glance
| Fixed Rate | Floating Rate | |
|---|---|---|
| Payment certainty | High — same every month | Low — moves with the benchmark |
| Typical use | Permanent, stabilized loans | Bridge, construction, transitional loans |
| Common benchmark | N/A (set at closing) | SOFR + spread |
| Risk to borrower | Rate risk locked in at closing | Payment can rise if rates rise |
Module Check
Question 1 of 1quick mode
True or False: A floating-rate commercial loan is most commonly benchmarked to SOFR.