Fannie SARM is a 7- or 10-year floating-rate execution priced over SOFR with embedded rate caps ( cap cost amortized into spread ). The borrower has a defined option to convert to fixed at any point, with the fixed rate set at then-current market plus a spread adjustment. Useful for floating-rate optionality with built-in cap protection.
When the SARM beats a standalone bridge plus cap
Structure: 7- or 10-year term floating over one-month SOFR. Cap is embedded in the loan structure with a defined strike (typically struck at a SOFR level that maintains a defined debt-yield); cap cost is amortized into the loan spread rather than paid as a separate upfront premium.
Conversion option: at any point during the loan term, the sponsor can convert the floating rate to a fixed rate at the then-current SARM-conversion fixed rate (typically the matching-tenor fixed rate plus a small conversion fee). Conversion is one-way, once fixed, cannot convert back to floating.
When SARM beats a separate bridge plus cap: SARM is typically cheaper on an all-in basis when the loan term exceeds 5 years because the embedded cap structure is more efficient than buying separate caps every 3 years. SARM is also cleaner from a documentation perspective, no separate ISDA or counterparty selection.
When a bridge-plus-cap beats SARM: shorter-term value-add deals (24-to-36 month hold) are typically better served by a standalone bridge with a separate cap because the bridge structure has more flexibility on extension options and prepayment.
Selection: model both structures at the placement stage. The SARM works best for sponsors who want long-dated floating-rate optionality with the ability to convert to fixed if rates fall and lock in the gain. The standalone bridge works best for short-hold execution-focused deals.
Sources
- Delegated Underwriting and Servicing (DUS) program disclosures · Fannie Mae · current
- Multifamily Market Commentary · Fannie Mae Economic & Strategic Research · 2026-Q1