Most commercial mortgage rates are determined as spreads over various indices, even when the lender quotes the rate without the spread.  Typically spreads on commercial mortgage loans increase when the Fed increases the discount rate.  However numerous other factors affect commercial mortgage spreads, which in turn determines many commercial mortgage interest rates.

Many fixed rate loan products are set at spreads over Libor, which is a major capital markets floating rate index.  Floating rates are swapped with fixed rates through the swap market.  As a result swap spreads have become a good indicator of overall credit market risk.

Developing an understanding of the interplay between market risk and the risk tolerance and pricing characteristics of different types of lenders helps Financial Compound to understand the dynamics that make up commercial mortgage interest rates.  A good starting point for this understanding is to study the interplay between commercial mortgage indices and the spreads over those indices that determine where commercial mortgage loan rates.

Financial Compound can help borrowers understand commercial mortgage rates and determine which type of financing program makes the most sense for the property and the long term strategy of the borrower.  Amortization and property cashflow should be projected throughout the term of the loan to avoid unanticipated phantom income as well as to understand balloon and refinance risk.