Secured Overnight Finance Rate (SOFR) Loans Explained

What is SOFR?

The Secured Overnight Finance Rate (SOFR) is the interest rate banks pay to borrow money overnight, backed by U.S. Treasury securities. It serves as a benchmark for financial institutions to determine interest rates on loans for businesses and individual borrowers.

How Does SOFR Work?

SOFR is a financial index that can seem complex and difficult to understand. But, essentially, the SOFR index is largely determined by actual financial transactions and the rates at which large banks lend each other money in the short-term. Treasury bond repurchase agreements, also known as repos, enable banks to make overnight loans in order to boost liquidity and meet reserve regulations. The SOFR calculates the weighted average of these overnight loans and the rates charged for them, and generates figures based on those transactions.

Historical Chart of the SOFR Index

Since the inception of the SOFR index in 2018, the highest it has gone is 5.35% as of April 9th 2025. Before the SOFR index replaced the LIBOR index, the LIBOR was always below 3% from 2009 to 2018. The last time the LIBOR index was above 3% was in 2008, when the high was 4.59%. The highest the LIBOR index rose to in the last 20 years (2002) was in 2007, when it reached 5.82%.

What is a SOFR Loan?

A SOFR loan is an adjustable rate mortgage in which the interest rate remains fixed for a specific period of time. With an adjustable rate mortgage, you’re often able to secure a low interest rate for a number of years. Once this introductory period ends, the interest rate adjusts based on the SOFR index.

What this means for you as a borrower is that your interest rate can go up or down depending on the SOFR index and market conditions. With a 6 month SOFR loan, your rate will be adjusted every 6 months based on the index. Keep in mind that there’s a cap on the amount your interest rate can rise, so, even with an adjustable rate mortgage, your interest rate can’t keep rising indefinitely.

What Is a 6 Month SOFR DSCR Loan?

A 6-month SOFR  loan is a type of non-QM loan that has an adjustable interest rate, which is updated every six months based on the Secured Overnight Financing Rate (SOFR).

With a 6-month SOFR loan, the interest rate is adjusted every six months according to the current SOFR rate. This means your mortgage payments can go up or down depending on market conditions. SOFR-based loans come in different term structures, such as 3-month, 6-month, or 12-month adjustments, meaning the rate resets at those intervals.

At Griffin Funding, we offer a variety of SOFR  loan options to fit different investment strategies, including:

• 6-month SOFR loans (interest rate adjusts every 6 months)
• 3/6 SOFR loans (fixed for 3 years, then adjusts every 6 months)
• 5/6, 7/6, and 10/6 SOFR loans (fixed for 5, 7, or 10 years, then adjusts every 6 months)

Benefits of a SOFR Loan

There are several benefits associated with taking out a 6 month SOFR loan. These benefits include, but are not limited to, the following:

• You can access lower upfront interest rates.
• You can potentially capitalize on falling interest rates without having to refinance.
• You can benefit if you don’t plan to stay in your home for long. This is because you can take advantage of the low interest introductory period and sell the home before interest rates adjust.

Drawbacks of a SOFR Loan

Like any home mortgage, a SOFR loan has its benefits and drawbacks.

One of the biggest concerns is volatility. Since SOFR is based on real overnight transactions in the U.S. Treasury repurchase market, it can fluctuate frequently, sometimes unpredictably.

With a SOFR-based loan, your interest rate is directly tied to the movement of the SOFR rate. If the rate drops significantly, you’ll benefit from lower interest payments. However, if it rises sharply, your loan payments could increase unexpectedly, making budgeting more difficult.

Types of 6 Month SOFR Loans Available From Griffin Funding

Griffin Funding offers 6 month SOFR loans for the following loan types:

• DSCR ARM loans: A debt service coverage ratio ARM loan is a type of non-QM loan that real estate investors can use. It allows an investor to qualify based on the debt service coverage ratio (DSCR) rather than other traditional financial metrics.
• Bank statement ARM loan: A bank statement ARM loan that self-employed business owners use is one in which the borrower uses their bank statement as proof of income in lieu of a tax return or a W-2.
• Asset-based ARM loans: An asset-based ARM loan that utilizes assets as part of the proof of income when applying for a home loan. Asset-based arm loans are non-QM loans for high-net worth individuals and retirees to qualify using their assets rather than their tax returns or W-2. A job is not required for asset-based ARM loans.

As you can see, at Griffin Funding we offer a variety of 6 month SOFR ARMs. A 3/6 SOFR ARM is a loan that remains fixed for a period of three years, then is adjusted every six months. Griffin Funding also offers these in 5/6, 7/6, and 10/6 options.

6MO SOFR ARM Mortgage Loan Rates

How can Realtors use a SOFR ARM to Help HomeBuyers with Affordability?

In this video, our CEO, Bill Lyons, explains how real estate agents are helping their home buyers deal with raising interest rates and affordability. An ARM loan can start 2-3% or more below the prevailing 30yr fixed market rate. ARM loans provide lower upfront payments to help alleviate the cost of homeownership.