Interest Rate:  

• Variable-rate: 1-month SOFR + 7-year floating pricing + 20 bps

• Fixed rate: 7-year UST + 7-year fixed pricing + 20 bps

Maximum LTV/Minimum DSCR:  Sized based on fixed-rate

Prepayment Options:  No prepayments allowed during the 2 year variable-rate period, defeasance permitted during the fixed-rate period 

Timing: Typically 60-75 days from application to closing 

Advantages

• Very competitive interest rates

• Loans are typically non-recourse

• Automatic conversion to fixed-rate financing

• Fixed-rate portion of the loan can be locked before closing

• Supplemental loans allowed (starting in the second year of the fixed-rate period)

Disadvantages

• Typically requires third-party reports, including Appraisal, Phase I Environmental Assessment, and Physical Condition Assessment

• Updated third-party reports required at conversion to fixed-rate financing (paid for by Freddie Mac unless additional loan funds are requested)

• Application fee of $2,000 or 0.1% of loan amount required

• 2% rate lock fee usually required (refunded after Freddie Mac purchases loan, usually around 30 days post-closing)

Case Study: Buying in Indiana

George, an experienced real estate investor, identified a promising opportunity to expand his portfolio in the Midwest city of Lafayette, Indiana, a community experiencing consistent growth. His acquisition target was a relatively new, well-kept 30-unit multifamily property on the market for $3.7 million.

Keen to make the most of this investment opportunity, George decided to finance the acquisition using a Freddie Mac Float-to-Fixed-Rate Loan. This financing option allowed him to enjoy two years of interest-only payments at a variable rate, followed by seven years of fixed-rate terms. It aligned perfectly with his financial strategy, enabling him to reinvest the early years' savings into the property and the local community.

To secure the loan, George applied for an amount of close to $2.9 million, maintaining a robust 80% loan-to-value (LTV) ratio. The Float-to-Fixed-Rate Loan, with its automatic conversion to fixed-rate financing after two years, offered George the financial predictability he needed for his long-term investment plans. He was also able to lock in the fixed rate at the initial closing, providing additional stability.

Complying with loan requirements, George obtained necessary third-party reports, including a property appraisal, a Phase I Environmental Assessment, and a Physical Condition Assessment. These were essential for the lender's underwriting process and served as a valuable risk management tool for George, providing him with a comprehensive understanding of his investment.

Through the Freddie Mac loan, George successfully acquired the multifamily property in Lafayette. The Float-to-Fixed-Rate Loan's unique structure provided him with the financial flexibility he needed to capitalize on this exciting investment opportunity in an expanding market.

This is a fictional case study provided for illustrative purposes.

In this article:

1. Freddie Mac Float-to-Fixed-Rate Financing for Multifamily Properties
2. Sample Freddie Mac Terms for Float-to-Fixed-Rate Loans in 2024
3. Advantages
4. Disadvantages
5. Case Study: Buying in Indiana
6. Get Financing