What is SOFR?
SOFR, the Secured Overnight Financing Rate, is a benchmark interest rate used to set the index for many adjustable-rate mortgages and other loans.
SOFR is a broad measure of the cost of borrowing cash overnight, backed by Treasury securities. It replaced older benchmarks like LIBOR for many financial products, including adjustable-rate mortgages. Borrowers meet SOFR indirectly because their loan's index and margin are tied to it, affecting the fully indexed rate. Watch for how your lender defines the SOFR index in your note, including the lookback period and rounding conventions. Because SOFR is market-driven, it can change over time, which may cause your mortgage rate to adjust. Understanding this benchmark helps you anticipate payment changes on an adjustable-rate loan.
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