June 2024 Market Rate Update
Each month, the IAACU Small Business Team aims to provide insights into the current trends in Commercial Real Estate market rates, which are influenced by movements in the US Treasury yield.
A Small Reprieve in Commercial Loan Rates: What It Means for You
As of June 3rd, we’ve finally seen a break from the consistent trend of increasing commercial loan rates. In May, the average 5-year US Treasury yield was 4.50% which is 6 basis points (0.06%) lower than April’s average rate. After seeing rates increase month over month since February of 2024 when we began reporting on rates, we have finally seen a small reversal.
What Does This Mean?
Based solely on these trajectories, we might see the 5-year US Treasury rates drop further, possibly reaching as low as 4.20% or even 4.15% in the near term. This would place rates at the lower end of the past three-month range. However, without additional data indicating a significant reduction in inflation, we anticipate the 5-year US Treasury Yield to rebound quickly to the 4.50% - 4.75% range.
Implications for Commercial Loan Rates
To estimate commercial loan rates, add the typical risk margin of 3.00% to 4.00% to the 5-year Treasury rate. This places the initial 5-year portion rates of a standard 5:1 adjustable rate loan between 7.50% and 8.50%.
A Look Back
A year ago, the 5-year US Treasury rate was 3.84%, slightly higher than its long-term average of 3.75%. However, if inflation decreases to the Fed’s target of 2%, we can expect these rates to fall correspondingly.
Commercial Loan Rate Lock Option
At IAACU, we genuinely care about COUNTRY Agents and their financial well-being, so we strive to protect them from volatile interest rate swings just before closing. That's why COUNTRY Agents now have the option to lock in the index interest rate ahead of time. Plus, if the index rate drops seven business days before closing, we offer a free float down to the lower rate. This not only eliminates the risk of an interest rate increase during underwriting but also provides an opportunity to benefit from a lower rate if it decreases just before closing.
Stay tuned for further updates as we monitor these trends and their impact on commercial loan rates.
Read our May 2024 Market Rate Update.
*Rates from Resource Center | U.S. Department of the Treasury as of June 3, 2024.