The negative economic news caused by the COVID-19 pandemic has held the benchmark 10-year treasury to all-time lows, closing today at 0.62%. Lenders typically price their loans with a “spread” over their benchmark index. The 10-year U.S. Treasury is the common benchmark used in long-term fixed-rate financing.
Many factors affect the margin or “spread” that lenders change over their benchmark to come up with the interest rate that the customer ultimately pays. Factors include:
1. The current supply of market liquidity
2. Pricing of alternative investments outside of CRE loans
3. Perceived volatility and risk in the market
As the financial markets have settled down significantly over the past 45 days, spread/risk premiums for loans offering long-term fixed-rate financing has also come down.
The current market for a typical 10-year fixed-rate loan ranges from approximately 2.75%-4.0%.