What is a delayed interest rate swap on a commercial loan?

A delayed interest rate swap is a structure where the borrower closes on a floating-rate loan and has a defined window — typically 3 to 6 months — to execute a swap that converts the floating rate to a fixed rate for the remaining loan term. This allows the borrower to benefit from potential near-term rate declines before locking in.

Why is a SOFR swap rate lower than a Treasury-based fixed rate?

The SOFR swap curve and the Treasury yield curve are different instruments. As of early 2026, the 5-year SOFR swap rate is approximately 30 basis points lower than the 5-year Treasury yield. When a bank prices a fixed-rate loan off Treasuries versus a swap-based structure, the swap route can produce a meaningfully lower all-in rate.

An Elegant Solution to a Common Problem: Using a Delayed Swap to Beat Today’s Rates

Q: What are the risks of a delayed swap strategy?

The primary risk is that rates move higher during the float period instead of lower. If swap rates increase during the 6-month window, the borrower locks in at a worse rate than what was available at closing. This strategy works best for borrowers with a clear rate outlook and the ability to absorb short-term rate volatility.

Every borrower in commercial real estate is asking the same question right now: How do I get the capital I need today without locking in a rate I’ll regret tomorrow? On a recent deal, we found an answer.

The Problem Everyone Is Facing

I wrote a few weeks ago about the Fed lowering rates with little impact on commercial mortgage rates. Here’s what I didn’t delve into: over a longer period of time, these things do equalize. The Fed’s cuts work their way through the system. Swap rates adjust. Credit spreads respond. It just doesn’t happen as quickly as we want it to.

And that creates a real tension for borrowers. You may need to refinance now — your loan is maturing, you need cash out for another project, or you have a time-sensitive opportunity. But locking in a 5-year fixed rate today, when you believe rates are heading lower over the next 6–12 months, feels like leaving money on the table.

In this business, without creativity, you’re out.

The Deal

We recently tied up a portfolio of three commercial properties in Florida with a regional bank. The loan provides our client with significant cash out, a portion of which will be reinvested back into the properties for capital improvements.

The bank offered two rate options:

Option A — Standard fixed rate: Priced off the 5-year Treasury plus the bank’s spread. Not terrible, but at the lower end of what banks are quoting right now for non-swap deals.
Option B — Swap-based fixed rate: The client takes a floating-rate loan (SOFR + investor spread) and simultaneously executes an interest rate swap to convert it to a fixed rate. The swap rate is priced by adding the investor spread to the 5-year SOFR swap rate — which is currently running about 32 basis points below the 5-year Treasury.

That 32 bps difference is meaningful. On a multi-million dollar portfolio loan, it translates to real dollars in annual debt service savings. So Option B is already the better play. But we didn’t stop there.

Why is the swap rate lower? The SOFR swap curve and the Treasury yield curve are different instruments driven by different market forces. Right now, the SOFR swap curve is sitting roughly 30–35 bps below corresponding Treasury yields at the 5-year point. When a bank prices a fixed-rate loan off Treasuries versus a swap-based structure, that gap flows straight to the borrower’s bottom line.

The Elegant Part

Our client has a strong view that the 30-day SOFR rate will continue to drop — particularly as Fed leadership transitions and the market prices in further easing. So we asked a simple question: what if the borrower doesn’t have to swap at closing?

We negotiated with the lender to allow our client’s interest rate to float for up to six months on a 5-year loan. At any point during that 6-month window, the client can exercise a swap for the remaining loan term.

For example: if the client chooses to swap in month 3 of the loan, they execute a 57-month rate swap at whatever the prevailing swap rate is at that time. If they wait until month 5, it’s a 55-month swap. And if rates haven’t moved the way they expected, they can lock in at any point before the window closes.

Deal Structure at a Glance

Property 3-property commercial portfolio, Florida

Lender Regional bank

Loan Term 5 years

Initial Rate Floating (SOFR + spread)

Swap Window Up to 6 months to lock in

Swap Advantage vs. Treasury ~32 bps lower

Cash Out Yes — partially reinvested into properties

Why This Works

This structure solves for the fundamental tension in the market right now. The client gets their cash out at closing — they don’t have to wait for rates to drop to move forward with their plans. And they get up to six months to ride the floating rate down before committing to a fixed rate for the balance of the term.

The lender liked the concept because they’re booking the loan now and earning their spread from day one. The borrower likes it because they’re not leaving potential savings on the table. And we like it because our client is happy — which is the whole point.

A Word of Caution

This isn’t a risk-free strategy. If rates move higher during the float period instead of lower, the borrower locks in at a worse rate than what was available at closing. This approach works best for borrowers who have a clear view on the rate direction, can absorb short-term rate volatility, and understand the trade-off they’re making.

It’s also not a structure every lender will agree to. This took negotiation. It required a bank relationship, a clean deal, and a borrower with strong credit. But that’s what we do — we find the structure that fits the situation.

The Takeaway

This isn’t an earth-shattering level of creativity. But it didn’t need to be. It solved a real problem for a real client: getting the cash out he needed now, without being forced to lock in a rate he didn’t love. That’s the elegance of the solution.

We’re now working to replicate this structure on other deals. If you’re facing a similar situation — you need to close but you believe rates are heading lower — this is worth a conversation.

Have a Deal That Needs a Creative Structure?

We work across dozens of lending sources — banks, life companies, CMBS, debt funds — to find the structure that fits your deal, not just the first term sheet that comes back. If you’re navigating today’s rate environment and need a better solution, let’s talk.

Submit Your Deal Call Us — (561) 408-7500

About the Author: Michael Brown is the Principal of Banyan Commercial Capital, an independent commercial mortgage brokerage headquartered in Boca Raton, Florida. With over 20 years of experience and $8B+ in transaction volume, Michael and his team specialize in debt, mezzanine, preferred equity, and joint venture capital for commercial real estate nationwide.