What is the difference between a best-efforts and a mandatory rate lock on a CRE loan?

When each lock type fits

Best-efforts: standard on agency multifamily, life co perm, bank perm, and most balance-sheet bridge debt. The lender bears the rate-movement risk between rate-lock and closing; if the deal does not close, the lender absorbs the hedge cost. The trade is the borrower pays modestly more in spread to get the option value.

Mandatory: standard on CMBS (where the loan is securitized and the rate is fixed at securitization pricing) and on certain agency executions where the borrower has chosen to lock early to protect against rate movement. The borrower bears the rate-movement risk both ways: benefits from a rate drop, exposed to break fee on a rate rise if the deal does not close.

Break fee on a mandatory: the present value of the lender's hedge cost. On a $20M loan with a 100-bp swap-rate move against the lender, the break fee can be 5% to 8% of loan amount. This is an enforceable obligation, not a deposit forfeiture; borrower exposure is the full break fee.

Early rate lock (agency): some agency lenders offer an early rate lock 60 to 120 days before closing. The borrower pays a fee (typically 0.5% to 1.0% of loan amount) to lock the rate; the rate-lock deposit is held until closing. If the deal does not close, the deposit is forfeited and the rate-hedge break fee may apply.

When to take which: best-efforts on most stabilized perm where rate volatility is moderate and the option value is worth the slightly wider spread. Mandatory on CMBS (no choice) and on early-rate-lock when the rate path expectation is for material increases and the diligence is strong.