Forward rate locks cost 1 to 5 basis points per month of lock window for agency multifamily loans (Fannie and Freddie), and 5 to 15 basis points per month for non-agency forwards. The cost compensates the lender for hedging the locked rate against funding-cost moves before the loan funds.
When is it worth paying?
When rate volatility risk exceeds the lock cost. A 50-basis-point upward move in Treasuries adds roughly $150,000 per year of interest cost on a $30 million loan; paying 5 basis points per month for two months ($30,000) is cheap insurance. Sponsors with construction take-out timing or 1031-exchange deadlines should price the option before entering the rate-lock window.
What are the mechanics?
The borrower posts a rate-lock deposit (1 to 2 percent of loan), the lender hedges its position, and the rate is held for the agreed window. If the borrower fails to close on stated terms, the deposit is forfeited. Most agency lenders allow modest delivery flexibility (5 to 15 day grace) before forfeiture triggers.
Sources
- Delegated Underwriting and Servicing (DUS) program disclosures · Fannie Mae · current
- Optigo lending program disclosures · Freddie Mac Multifamily · current