
Structured ARM
Long term financing with a very competitive variable interest rate that is convertible to a fixed-rate for the acquisition or refinance of multifamily properties.
Benefits
- Attractive low-cost financing
- Convertible to fixed-rate
- Flexible loan terms and prepayment options
- Ability to choose interest rate cap
Eligibility
- Existing, stabilized Conventional properties; Multifamily Affordable Housing properties; Seniors Housing properties; Student Housing properties; and Manufactured Housing Communities
- Mortgage Loans secured by properties undergoing Moderate Rehabilitation may be eligible on a case-by-case basis.
- Credit Enhancement Mortgage Loans and Substantial Rehabilitation are not eligible
- Loans of $25 million or more
Term
5, 7, or 10 years.
Amortization
Up to 30 years.
Interest Rate Adjustments
Interest rate adjusts based on changes to the underlying Index and is equal to the Index plus the Margin. No limit on rate changes.
Maximum LTV
75%.
Minimum DSCR
1.00x, using a DSCR calculated based on a variable underwriting rate. Mortgage loan amount shall not exceed that of a fixed-rate loan of similar terms.
Rate Lock
30-day commitments.
Supplemental Financing
Supplemental loans are available.
Prepayment Availability
After a one-year lock-out period, loans may be voluntarily prepaid. Lender selects the option of a declining prepayment premium or a 1% prepayment premium. No prepayment premium required during the last 3 months of the loan term.
Variable Underwriting Rate
Sum of (i) the Index, plus (ii) the investor spread, guaranty fee and servicing fee (the “Margin”), plus (iii) the interest rate cap escrow expressed as a percentage (if the cap term is shorter than the loan term), plus (iv) 3%, plus (v) the amortizing constant for that built-up rate.
Index
30-day Average SOFR.
Interest Rate Cap
- Structured ARMs have no built-in periodic or lifetime caps. Instead, the Borrower must purchase an interest rate cap from an approved interest rate cap provider.
- The term of the initial interest rate cap need not be equal to the term of the Mortgage Loan, but must be for at least 5 years.
- If the Mortgage Loan term is longer than the interest rate cap term, the Borrower must escrow monthly for the purchase of the next interest rate cap.
Interest Rate Floor
The interest rate shall never be less than the Margin.
Conversion to Fixed Rate
Subject to the terms of the Loan Document, the variable rate Mortgage Loan may be converted to a fixed rate Mortgage Loan (with a 7 or 10 year term) on any rate change date beginning on the first day after the Lockout Period and ending on the first day of the third month prior to the Maturity Date.
- No Prepayment Premium charged at the time the variable rate Mortgage Loan converts to a fixed rate Mortgage Loan.
- Minimal re-underwriting; Lender determines that the current Net Cash Flow can support the new fixed-rate terms.
- No increase in the loan amount; loan may be eligible for a Supplemental Loan.
Accrual
Actual/360.
Recourse
Non-recourse execution with standard carve-outs for “bad acts” such as fraud and bankruptcy.
Escrows
Replacement reserve, tax, and insurance escrows are typically required.
Third-Party Reports
Standard third-party reports required, including Appraisal, Phase I Environmental Site Assessment, and Property Condition Assessment.
Assumption
Loans are typically assumable, subject to review and approval of the new borrower’s financial capacity and experience.
Related Products
Related Resources
FAQs
Fixed Rate Conversion Option
Exercising the Fixed Rate Conversion Option for Adjustable Rate Mortgage Loans and Structured ARM Loans.
Learn MoreJob Aid
Entering SARMs into C&D
Using the Committing and Delivery System for Structured ARM Mortgage Loans
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