The Fed's Current Stance
The Fed Funds rate sits at 4.0-4.25% as of March 2026. Inflation is 2.4-2.6%, closer to the 2% target. Fed guidance says the neutral rate is around 4.0-4.25%, meaning the Fed believes this is the natural resting rate. Cuts beyond that are unlikely. Market expectations show no meaningful rate cuts in 2026, possibly one 25-bps cut in Q4 2026.
What This Means for CRE Rates
Today's fixed-rate CRE loan is 10-year fixed at 7.0-7.5% for bank lenders or 5-year fixed at 6.75-7.25%. If the Fed cuts 75 bps by end of 2027, 10-year fixed might be 6.25-6.75% (savings of 25-75 bps). If the Fed cuts only 25 bps, 10-year fixed might be 6.75-7.25% (no benefit). Consider a $4M loan with 25-year amortization. At 7.25%, your annual debt service is $264.5K with $2,116K cumulative 10-year interest. Regret scenarios matter: Cost of locking 7.25% then rates fall to 6.75% is $200K regret. Cost of waiting and rates rise to 7.75% is $200K loss.
Current Market Supporting Lock Decision
The Fed last cut rates in December 2024 and has held steady since. First meaningful cut is unlikely before Q4 2026 at earliest. If rates do fall, it will be 25 bps at a time. To get 75 bps of cuts, you need three meetings spread over 18+ months. Waiting for meaningful rate cuts requires patience of 18-24 months minimum.
Today's 7.25% fixed rate already includes the market's expectation of Fed rate cuts. If the market expects one 25-bps Fed cut by end of 2026, that's baked into today's rate. The rate isn't going to drop significantly unless inflation falls faster than expected.
The Asymmetry: Cost of being wrong on waiting is missing the deal entirely or paying 150 plus bps more. Cost of being wrong on locking is overpaying 50-75 bps on a loan held 10 years. The cost of being wrong is worse if you wait.
The Recommendation
Lock today if you have a quality deal (DSCR above 1.30x at 7.25%), plan to hold 7 plus years, property cash flow is adequate but not exceptional, you want certainty for lender approval, and you've been looking for this deal for months.
Wait for rates to fall if you have multiple deals in pipeline (optionality), you're confident inflation will cool in Q3-Q4 2026, you have time (no urgent need to close by Q2 2026), the deal has exceptional NOI (DSCR above 1.50x even at 8.0%), or you plan to flip or refinance in 3-5 years anyway.
Frequently Asked Questions
What if rates rise between now and closing in 3 months?
Lock your rate with the lender immediately with a 90-120 day rate lock (costs 0.5-1.0% upfront). Better safe than sorry.
Can I refinance later if rates fall?
Yes, but refinancing costs 0.75-1.5% in fees, so you'd need 50 plus bps savings to break even. Lock fixed today to avoid refinancing costs.
Should I do floating-rate loan and lock in later?
Floating is 6.5-6.75% now. If you convert to fixed in 18 months at then-market rates (possibly 7.0-7.5%), net benefit is minimal.
What if I'm wrong and wait 2 years and rates hit 8.5%?
That's the real regret scenario. Waiting has unbounded upside risk. Locking has bounded downside (you overpay 0.50-0.75%). Most advisors would lock.