Definition
SOFR is a benchmark interest rate used by banks to determine the cost of overnight borrowing. It replaced LIBOR as the standard rate for many variable-rate loans.
Understanding SOFR in Mortgages
SOFR may appear when discussing adjustable-rate mortgages. It helps determine how much interest borrowers pay. In simple terms, SOFR reflects the cost of borrowing money overnight. Example: If SOFR is 1% today and your mortgage margin is 2%, your interest rate might be 3%. It's important to know that SOFR is an index, not a loan rate. It's not set by banks and doesn't guarantee your mortgage rate will match it exactly.
