The Fed raised its target range to 3.75%-4.00% on September 16, its first increase since 2023, and the 10-year Treasury closed September at 5.29%. If you have a commercial real estate loan to close, refinance, or extend this fall, the Fed rate hike changes your numbers, but not always the way the headlines suggest.
Here is what moved, what didn’t, and how I’m advising borrowers to respond.
What Did the Fed Actually Do on September 16?
The FOMC voted 12-0 to raise the federal funds target range by a quarter point to 3.75%-4.00%, according to the Federal Reserve’s September 16 statement. The Committee described inflation as elevated and framed the increase as a step toward getting back to its 2% goal.
The Fed’s own projections matter more than the hike itself. The median participant sees the federal funds rate ending 2026 at 4.1% and holding there through 2027, as Commercial Observer reported. That implies one more quarter-point increase before year end.
That is a “higher for longer” message. Anyone underwriting an exit in 2027 on the assumption of cheaper money should rerun the model.
How Does a Fed Rate Hike Affect Commercial Real Estate Loans?
It depends on what your loan is priced off. The Fed controls an overnight rate. Most permanent commercial real estate loans price off Treasury yields or swap rates, plus a spread. Floating-rate loans price off SOFR or Prime, which follow the Fed almost immediately.
Prime moves in lockstep with the top of the Fed’s range, so it now sits at 7.00%. The 10-year Treasury, which anchors most fixed-rate commercial debt, closed at 5.29% on September 30 per FRED. Long rates were already climbing before the meeting, so the hike confirmed a move the bond market had mostly made.
| Loan type | Priced off | Effect of the hike |
|---|---|---|
| SBA 7(a) variable | Prime + spread | Resets quickly. Rate rose with Prime. |
| Construction and floating bridge | SOFR or Prime + spread | Direct and immediate. Interest reserves burn faster. |
| Fixed-rate bridge and fix and flip | Lender’s cost of funds | Indirect. New quotes are higher, existing loans are unchanged. |
| DSCR loans (1-4 unit rentals) | Treasury or swap curve + spread | Moves with the bond market, not the meeting. |
| Agency, bank, and CMBS permanent debt | 5- to 10-year Treasury + spread | Higher, driven mostly by the 10-year. |
| SBA 504 (CDC portion) | Treasury-based debenture rate | Higher with long Treasury yields. |
For a closer look at where pricing stands by program, see our commercial real estate rates guide.
What Does a Quarter Point Do to Your Loan?
On a floating-rate loan, the math is simple. Every 25 basis points on a $3 million balance is $7,500 a year in additional interest.
On a fixed-rate permanent loan, the damage shows up in proceeds. Take a property with $240,000 of net operating income and a lender that requires a 1.25 DSCR on a 30-year amortization. At a 7.00% rate, that supports about $2.40 million. At 7.50%, the same property supports about $2.29 million.
Half a point of rate costs this borrower roughly $117,000 of proceeds. That gap comes out of your equity check on a purchase or your cash-out on a refinance. This is an illustration, not a quote, but the pattern holds across property types.
Lenders feel the same squeeze. Higher rates push cap rates up and values down, which pushes LTV up on existing loans. I’m seeing more files sized by debt yield than by LTV, and those sizing tests are less forgiving.
From a recent deal: I recently worked with an owner of a 24-unit apartment building in the Charlotte market who had a $2.6 million balloon due in January. His original rate was 4.5%, and the refinance quotes came back above 7%. At that rate his DSCR fell under 1.15, so the loan sized down by roughly $250,000. We solved it by restructuring into a 3-year bridge with a rate cap and an exit into permanent financing once his leases rolled to market. It cost him more than the old loan, but he kept the asset.
Looking at a refinance or acquisition in this rate environment? We structure these deals nationally. Schedule a 15-minute call →
What Should Borrowers With a Maturing Loan Do?
Start earlier than you think you need to. The MBA reports that $875 billion, or 17% of the $5.0 trillion in outstanding commercial and multifamily mortgages, matures in 2026. That is a lot of borrowers chasing the same lender capacity at the same time.
Three things I would do now if your maturity is within 12 months:
- Re-underwrite at today’s rate. Run your DSCR and debt yield at 7.5% and 8%, not at the rate you signed in. Know your sized proceeds before you talk to anyone.
- Decide how big the gap is. If proceeds fall short, you either bring cash in, find a lender with higher leverage tolerance, or use a bridge loan to buy time.
- Ask for an extension before you need one. Lenders deal with borrowers who show up 6 months out far better than those who show up at maturity.
If you are refinancing a loan with a hard maturity date, our guide on hard money loan exit strategies covers how to line up the takeout.
Should You Lock a Rate or Float?
I usually steer borrowers toward fixing the rate on anything they plan to hold longer than 3 years. With the Fed signaling one more hike and a long hold at the top, floating buys you nothing unless you plan to sell or refinance within 24 months.
For shorter holds, a floating bridge loan paired with an interest rate cap is a reasonable hedge. The cap costs money upfront, but it puts a ceiling on your worst case.
Two structural levers matter more now than they did a year ago. The first is interest-only periods, which improve your DSCR during stabilization. The second is the prepayment structure: if you expect rates to come down by 2028, a loan with a step-down penalty is cheaper to exit than a yield-maintenance loan. Our breakdown of commercial loan prepayment penalties shows how to negotiate that.
We work with lenders across bank, agency, SBA, CMBS, debt fund, and private capital sources, so we can run a refinance against several credit boxes at once instead of forcing one structure on your deal.
What About Investment Property and DSCR Borrowers?
The same logic applies to 1-4 unit investors. DSCR loan pricing follows the bond market, so rates were already moving up before September 16. If you own rentals financed at lower rates, a DSCR refinance only makes sense now if you are pulling meaningful cash or fixing a loan that is about to mature.
Rate-and-term refinances to save money are off the table for most investors who borrowed in 2020 and 2021. I’m telling clients to hold the low-rate debt and use new financing only for acquisitions and equity pulls.
Frequently Asked Questions
Do commercial mortgage rates go up when the Fed raises rates?
Not automatically. Fixed-rate commercial loans price off Treasury yields and swap rates, which move with market expectations. Floating-rate loans tied to Prime or SOFR move almost immediately with the Fed.
Will the Fed raise rates again in 2026?
The Fed’s September projections show a median year-end federal funds rate of 4.1%, which implies one more quarter-point hike. Projections change with the data, so treat it as a signal, not a promise.
How does a Fed rate hike affect a loan I already have?
A fixed-rate loan does not change. A floating-rate loan resets at its next adjustment date, and any loan that matures soon will be refinanced at the new rate environment.
Is it a bad time to buy commercial real estate?
Higher rates reduce leverage and put pressure on prices, which creates opportunities for buyers with cash and flexibility. Whether it makes sense depends on the deal’s cash flow at today’s debt cost, not on the Fed.
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This article is for informational purposes only and does not constitute financial, legal, or tax advice. Loan terms, rates, and availability vary by borrower, property, and market conditions. Consult Willowbrook Capital for scenario-specific guidance.