Which statement describes a floating-rate loan in CRE financing?

• A. It remains constant
• B. It adjusts with a benchmark index over time
• C. It is backed by government guarantees
• D. It is not securitized

Answer: (B)

A floating-rate loan is defined by its interest rate moving up or down over time rather than staying fixed for the life of the loan. In CRE financing, the rate is set as a benchmark index plus a lender’s margin, and it resets at regular intervals. This means the borrower’s payments can increase or decrease as the benchmark changes. For example, with a margin of 1.25% and a benchmark of 2.00%, the current rate is 3.25%. If the benchmark later moves to 2.50%, the rate would adjust to 3.75% at the next reset. This variability is the hallmark of floating-rate loans, contrasting with fixed-rate loans where the payment amount stays the same throughout the term. The concept doesn’t imply government guarantees, nor does it decide whether a loan is securitized—the latter are separate features that may or may not apply.