SOFR (Secured Overnight Financing Rate)
The benchmark interest rate that replaced LIBOR as the standard index for most adjustable-rate commercial and investor loans. Published daily by the Federal Reserve Bank of New York and based on overnight Treasury repo transactions.
SOFR — the Secured Overnight Financing Rate — is the dominant index for adjustable- and floating-rate investor and commercial loans. It's published every business day by the Federal Reserve Bank of New York and measures the cost of borrowing cash overnight collateralized by U.S. Treasury securities. Because it's based on a deep, observable market of actual transactions, it's considered far more robust and manipulation-resistant than LIBOR, which it replaced after LIBOR's phase-out completed in mid-2023.
Why it matters in investor lending
Most floating-rate DSCR loans, bridge loans, and commercial mortgages now price as SOFR + a fixed margin. When SOFR moves with Federal Reserve policy and short-term funding conditions, your rate resets accordingly. SOFR is therefore the single biggest driver of rate risk on an adjustable investor loan.
Flavors you'll encounter
- Daily SOFR — the raw overnight rate.
- Term SOFR (1-, 3-, 6-, 12-month) — forward-looking averages published by CME, the most common form referenced in loan documents because it's known in advance for each period.
- 30-day average SOFR — a backward-looking compounded average that smooths daily volatility.
A worked example
A bridge loan is quoted at Term SOFR (1-month) + 3.75%.
Month 1: SOFR 5.31% + 3.75% = 9.06%
Month 7: SOFR rises to 5.55% → 5.55% + 3.75% = 9.30%
The payment increased purely because SOFR rose; the margin held at 3.75%.
How it's used in investor lending
When you take a floating-rate loan, confirm which SOFR it uses (term vs. average), how often it resets, and what caps limit the rate. To eliminate SOFR exposure entirely, choose a fixed-rate product — common on long-term DSCR loans — which sets the rate off SOFR (and other benchmarks) once at closing and never adjusts. SOFR also shows up indirectly in yield maintenance and pricing on hard money loans.
This is general information, not financial advice.
Frequently asked questions
What replaced LIBOR for investor loans?
SOFR is the U.S. replacement benchmark for most adjustable-rate commercial and investor loans. LIBOR was phased out, with the last USD LIBOR settings ending in mid-2023, and lenders transitioned new and many existing contracts to SOFR plus a margin.
What's the difference between daily SOFR and Term SOFR?
Daily SOFR is the raw overnight rate published each business day. Term SOFR (1-, 3-, 6-, or 12-month) is a forward-looking average that's known at the start of each period, which makes it easier to use in loan documents. Many investor loans reference Term SOFR or a 30-day compounded average.
How can I avoid SOFR rate swings?
Choose a fixed-rate loan. Fixed-rate DSCR and term loans are priced off SOFR and other benchmarks once at closing and then never adjust, so movements in SOFR afterward don't change your payment. Floating-rate loans, by contrast, reset to current SOFR plus your margin.