Thirty guides on interest rate caps, one question each. What the contract is and when it pays out, how a strike is chosen, what a lender will demand at closing on bridge, construction and multifamily debt, how ASC 815 and the tax code treat the premium, and what to do when a cap is expiring or the loan pays off early. Start with the group that matches where you are in the trade rather than reading from the top. Below the post list you will find the market these contracts are priced off, with a date on every figure: where SOFR sits and where it has been since 2022, what the Federal Reserve projects for its own policy rate, and four real cap purchases with their premiums, taken from SEC filings rather than estimated.Interest Rate Cap
Interest Rate Cap
A rate cap is priced off a market. Here is that market, with a date on every number.
The rate cap calculator runs Black-76 on the assumptions you feed it. The 30 guides in this collection explain what each of those assumptions means: how a strike is chosen, what a confirmation says, how ASC 815 treats the premium, what a lender will demand at closing.
Neither tells you where the market actually is. That is what this page does. Every figure below comes from the New York Fed, the Federal Reserve Board, the FDIC or an SEC filing, and every one carries the date it applies to. Nothing here is illustrative.
SOFR has made a 535 basis point round trip since 2022
SOFR as of 13 August 202613 Aug 2026
matched 2 Jan and 1 Jul 2024
SOFR is not a forecast or a poll of banks. The New York Fed describes it as a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities, calculated as a volume-weighted median of actual transactions. That construction is why it behaves differently from the rate it replaced, and why a cap struck on it is hedging something real rather than a survey.
The number that explains what a cap is actually for
On 17 September 2019, SOFR printed 5.25%. The federal funds target range that day was 2.00 to 2.25 percent. The day before it printed 2.43 percent, and two days later it was back to 1.95 percent. A repo market dislocation moved the reference rate roughly 280 basis points above policy for a single day.
A borrower with a floating rate loan and no cap took that hit. A borrower with a cap struck below 5.25 percent did not. The Fed can hold policy perfectly steady and SOFR can still spike, because SOFR is a transaction rate and policy is a target. That gap is the tail the instrument covers, and no amount of forward curve analysis predicts it.
For the mechanics of how a cap settles when this happens, see When Does an Interest Rate Cap Pay Out? and What Is SOFR and How Does It Affect Your Interest Rate Cap?.
The Fed's own median projection points up, not down
FOMC 29 July 2026 | SEP 17 June 2026Anyone buying a cap in the second half of 2026 is taking a position against the published path. It is worth knowing what that path says, because it is not the one most commentary describes.
| Measure | Level | As of |
|---|---|---|
| Federal funds target range | 3.50% to 3.75% | 29 July 2026, held |
| Interest on reserve balances | 3.65% | Effective 30 July 2026 |
| Overnight reverse repo rate | 3.50% | Effective 30 July 2026 |
| Primary credit rate | 3.75% | Effective 30 July 2026 |
| SEP median, end 2026 | 3.8% | Projection, 17 June 2026 |
| SEP median, end 2027 | 3.6% | Projection, 17 June 2026 |
| SEP range top, end 2026 | 4.4% | Projection, 17 June 2026 |
The current midpoint is 3.625 percent. The June 2026 median projection for the end of this year is 3.8 percent, which is above it. The Committee's own median participant expects to be higher by December than they are today, and the top of the projection range implies more than 65 basis points of tightening. Three governors and presidents dissented at the July meeting, each preferring an immediate quarter point increase.
The last three actual moves were all cuts, in September, October and December 2025. Since then, five consecutive holds. How the Federal Reserve's Rate Decisions Affect Interest Rate Cap Premiums covers the transmission from a policy meeting to a premium quote, and Interest Rate Cap Stress Testing is where you put the 4.4 percent scenario to work.
Four real cap purchases, from filed SEC disclosures
Form 10-Q filings, quarter ended 31 March 2026There is no published market average for cap premiums. They are over-the-counter contracts and nobody centrally reports them, which is why every figure you see quoted as typical is somebody's estimate. Public companies do have to disclose their hedges, so real prices are on file. Here are four, from two REITs, all in the same reporting period.
| Filer and asset | Notional | SOFR strike | Term | Premium | % of notional |
|---|---|---|---|---|---|
| Sonida Senior Living, term loan | $262.5m | 4.50% | 36 months | $0.6m | 0.23% |
| Sonida Senior Living, bridge facility | $270.0m | 4.25% | 12 months | $35k | 0.013% |
| Lightstone REIT V, Citadel Apartments | $44.0m | 3.00% | 12 months | $0.5m | 1.14% |
| Lightstone REIT V, Axis at Westmont | $60.0m | 5.50% | 24 months | $0.1m | 0.17% |
Set the last two side by side. A 3.00 percent strike cost 1.14 percent of notional for one year. A 5.50 percent strike cost 0.17 percent for two years. On an annualized basis that is roughly a thirteen fold difference, and almost all of it is distance from the forward curve. Notional, credit and counterparty barely move the number by comparison.
The honest conclusion is that there is no typical cap cost. Four contracts from two filers in one quarter span 0.013 percent to 1.14 percent of notional. Anyone quoting a single percentage as the going rate is describing one deal, not a market. How to Choose the Right Strike Rate is where that decision gets made, and How to Shop and Compare Interest Rate Cap Quotes covers getting more than one number in front of you.
Lenders require these, in writing
The same Lightstone filing states that the borrower was required to enter into one or more interest rate cap contracts in the aggregate notional amount of $49.0 million, and separately that it is required to maintain an interest rate cap contract in the notional amount of $60.0 million. That is the covenant language, from the filing rather than from a broker's summary. It is common, but it is negotiated deal by deal, not a market rule. Bridge Loan Interest Rate Cap Requirements and Interest Rate Cap for Multifamily cover what different lender types ask for.
Commercial real estate credit, measured rather than described
H.8 release 14 August 2026 | Delinquency data Q1 2026Commercial real estate lending at US commercial banks stood at $3.118 trillion in July 2026. The delinquency rate on those loans, excluding farmland, was 1.56 percent in the first quarter of 2026, against 1.58 percent in the prior quarter and 1.57 percent a year earlier. That series has been flat for five quarters. For comparison, single family residential mortgages at the same banks ran 1.89 percent.
The FDIC's 2026 Risk Review, published 22 April 2026, puts it plainly: bank aggregate CRE loan delinquency and charge-off ratios remained low, and CRE conditions remained soft, particularly in the office sector, but stabilized in 2025. Office vacancy reached 14.0 percent at year-end 2025, four basis points above 2024. The report also notes that high operating costs, elevated interest rates and elevated vacancy rates challenged some borrowers' ability to refinance and repay.
What we are not publishing. The commercial real estate maturity wall figure that circulates widely, usually a several hundred billion dollar annual total, does not appear in any federal source. The FDIC 2026 Risk Review contains no maturity wall number at all. The figures in circulation come from trade associations and data vendors, and we are not repeating them here as though a regulator published them.
All 30 interest rate cap guides, grouped by where you are in the trade
The archive above runs newest first. These groups follow the life of a cap, from deciding you need one through to selling the residual value. Pricing questions hand off to the rate cap calculator.
Start here: the instrument
What a cap is, what it pays, and what sets the price. Read the first two before anything else.
- What Is an Interest Rate Cap? A Beginner's Complete Guide The contract explained from zero, with no derivatives background assumed.
- Interest Rate Cap for Commercial Real Estate: The Complete Guide The long-form reference for CRE borrowers, start to finish.
- What Is SOFR and How Does It Affect Your Interest Rate Cap? The reference rate your contract settles against, and how it is calculated.
- When Does an Interest Rate Cap Pay Out? Reset dates, settlement mechanics and how the money actually arrives.
- Interest Rate Cap Pricing: What Goes Into the Number? Strike, term, notional, volatility and the forward curve, in order of impact.
Choosing and buying one
The decisions that set your cost. Strike distance dominates everything else, as the filed prices above show.
- How to Choose the Right Strike Rate for Your Interest Rate Cap Where most of the economics live, and how to set the number deliberately.
- How to Shop and Compare Interest Rate Cap Quotes Making dealer quotes comparable, which they rarely are as delivered.
- Interest Rate Cap vs. Swap: Which Hedge Is Right for Your Loan? Upfront premium against a fixed obligation, and who each one suits.
- Interest Rate Cap vs. Interest Rate Floor: Key Differences Explained Two mirror instruments, and why lenders care about the floor.
- What Is a Rate Cap Collar and When Does It Make Sense? Selling a floor to fund the cap, and the upside you give up.
- Interest Rate Cap Due Diligence: The Complete Pre-Purchase Checklist What to confirm before you wire the premium.
What your lender will require
Cap covenants are negotiated deal by deal. These five cover the loan types where they show up most.
- Interest Rate Cap for Multifamily: A Complete Borrower Guide Agency and balance sheet multifamily requirements, and how they differ.
- Bridge Loan Interest Rate Cap Requirements: What Lenders Actually Want Notional, strike and term conditions on short-term bridge debt.
- Construction Loan Rate Cap: How It Works and What It Costs Sizing a cap against a draw schedule rather than a fixed balance.
- DSCR and Interest Rate Caps: How They Work Together Why the strike and the coverage covenant are the same conversation.
- Interest Rate Cap for Floating Rate Bonds and CLOs Caps outside the mortgage context, on structured floating rate debt.
Documents, accounting and tax
The paperwork stage, where a cap stops being a price and becomes an obligation on a balance sheet.
- How to Read an Interest Rate Cap Confirmation Document Line by line through the trade confirmation and what each term binds.
- What Is an Interest Rate Cap Assignment Agreement? Collaterally assigning the cap to your lender, which is usually required.
- Interest Rate Cap Accounting Treatment Under ASC 815 Hedge designation, effectiveness testing and where the premium lands.
- Interest Rate Cap Tax Treatment: What Borrowers Need to Know Amortizing the premium and how settlement payments are characterized.
- Interest Rate Cap Counterparty Risk: How to Evaluate Your Cap Dealer The protection is only as good as the dealer standing behind it.
Managing the position
A cap is an asset with a life. These five cover what happens after the trade date.
- Interest Rate Cap Extension: What to Do When Your Cap Is Expiring Renewing into a different curve, and what that repricing looks like.
- How to Sell or Terminate an Interest Rate Cap Early Recovering residual value when the loan pays off ahead of schedule.
- Managing a Cap Portfolio Across Multiple CRE Loans Tracking strikes, expiries and notionals across a book of assets.
- Interest Rate Cap Stress Testing: How to Model Worst-Case Scenarios Running the 4.4 percent projection scenario, and worse, against your debt.
- How the Federal Reserve's Rate Decisions Affect Interest Rate Cap Premiums From an FOMC statement to a quote on your screen.
Market context and mistakes
Where the market came from, what moves premiums beyond the level of rates, and what goes wrong.
- LIBOR to SOFR: What the Transition Means for Rate Cap Holders The cessation, the LIBOR Act, and the statutory spread adjustments.
- How Implied Volatility Affects Interest Rate Cap Premiums The input that moves your price when the rate itself has not moved.
- Real-World Examples: How Interest Rate Caps Protect CRE Borrowers Worked scenarios showing the instrument doing its job, and failing to.
- 7 Costly Mistakes Borrowers Make When Buying an Interest Rate Cap The expensive ones, from mismatched terms to unassigned collateral.
Numbers worth keeping to hand
The statutory LIBOR to SOFR spread adjustments still govern legacy contracts that never got amended. They are codified, not conventional, and they are fixed permanently.
| USD LIBOR tenor | Spread adjustment | Basis points |
|---|---|---|
| Overnight | 0.00644% | 0.644 |
| One month | 0.11448% | 11.448 |
| Three month | 0.26161% | 26.161 |
| Six month | 0.42826% | 42.826 |
| Twelve month | 0.71513% | 71.513 |
USD LIBOR panel publication ended after 30 June 2023. The Adjustable Interest Rate (LIBOR) Act was enacted 15 March 2022, and the Federal Reserve's implementing rule, Regulation ZZ at 12 CFR Part 253, took effect 27 February 2023. LIBOR to SOFR: What the Transition Means for Rate Cap Holders covers what that did to contracts written before the switch.
A note on Term SOFR
CME Term SOFR is the forward looking rate most cap confirmations reference, and CME licenses it. Using the published levels as a pricing input requires an information license agreement, so no level appears on this page. What we can state from CME's own methodology page is the construction: thirteen consecutive one month SOFR futures and five consecutive quarterly three month SOFR futures, published at 5:00 am Central each day. The New York Fed does publish compounded SOFR averages freely, at 3.63617 percent over 30 days and 3.63113 percent over 90 days as of 14 August 2026, but those look backward and are not a substitute for a forward term rate.
Frequently asked questions
What is SOFR right now?
SOFR was 3.62 percent on 13 August 2026, on transaction volume of $2,932 billion. It started 2022 at 0.05 percent and peaked at 5.40 percent on 28 December 2023, so the full cycle has been a 535 basis point round trip.
How much does an interest rate cap cost?
There is no market average, because caps are over the counter and premiums are not centrally reported. Four caps disclosed in SEC filings for the quarter ended 31 March 2026 ranged from 0.013 percent to 1.14 percent of notional, driven mostly by strike distance.
Why is a lower strike so much more expensive?
Because it is closer to the forward curve and therefore far more likely to pay out. In the filings above, a 3.00 percent strike cost 1.14 percent of notional for one year while a 5.50 percent strike cost 0.17 percent for two.
Is the Federal Reserve expected to cut rates further?
Not according to its own projections. The June 2026 median for the end of 2026 is 3.8 percent, above the current 3.625 percent midpoint, and three participants dissented in favor of an immediate increase at the July 2026 meeting.
Can SOFR spike even if the Fed does nothing?
Yes. On 17 September 2019 SOFR printed 5.25 percent while the federal funds target range was 2.00 to 2.25 percent, then returned below 2.00 percent within two days. SOFR is a transaction rate, not a policy setting.
How stressed is commercial real estate credit right now?
Less than the commentary suggests. The delinquency rate on bank CRE loans excluding farmland was 1.56 percent in the first quarter of 2026, flat across five quarters and below the 1.89 percent rate on single family residential mortgages at the same banks.
Every figure on this page, and where it came from
- SOFR. Federal Reserve Bank of New York, Secured Overnight Financing Rate and the published reference rate history, for the 13 August 2026 print, the January 2022 level, the December 2023 peak and the September 2019 spike.
- Policy settings. Federal Reserve Board, FOMC statement of 29 July 2026 and its implementation note.
- Projections. Federal Reserve Board, Summary of Economic Projections, 17 June 2026.
- Cap premiums. Sonida Senior Living and Lightstone Value Plus REIT V, Forms 10-Q for the quarter ended 31 March 2026, filed with the Securities and Exchange Commission.
- Bank lending. Federal Reserve Board, H.8 Assets and Liabilities of Commercial Banks, release of 14 August 2026, and the delinquency rate release for the first quarter of 2026.
- CRE conditions. FDIC, 2026 Risk Review, published 22 April 2026.
- LIBOR. Regulation ZZ, 12 CFR Part 253, for the statutory spread adjustments, and the Federal Reserve's December 2022 announcement of panel cessation.
Where to go next
Price a specific structure with the rate cap calculator. For adjacent financing questions, the land loan collection covers borrowing against real property and the finance tools page lists every money calculator here. Everything else is on the Waldev homepage.
Scope note. This page reports published market and regulatory data as of the dates shown and explains general practice. It is not investment, hedging, accounting, tax or legal advice, and it is not a quote. Rates change daily, projections are not commitments, and the SEC filings cited describe specific negotiated transactions rather than market terms. Price any hedge with your own dealers and advisers.