Floating Rate Loans For Commercial Properties Are Falling Out of Favor

Interest rates might seem high now, but they are nothing compared to the 1980s. The average rate for a loan in 1981 was 16.5 percent, making it hard for most people to afford to buy a house. Back then, after years of raising interest rates to combat rampant inflation, there was a sense that the federal government was going to start easing rates back down. Understandably borrowers did not want to lock themselves into those high rates for the long term so to help people buy homes (and keep the real estate industry afloat) a new mortgage product was introduced. Adjustable-Rate Mortgages, or ARMs, started to be offered by banks across the country. These loans would help people buy houses they needed today without worrying about refinancing later as rates inevitably dropped. 

The popularity of ARM loans spurred the creation of similar products in the commercial property industry. Floating-rate loans have slowly become more common for commercial borrowers over the past few decades but their popularity spiked as rates got pushed down to almost nothing during the financial crisis in 2008. For the 10 years that followed the Great Recession, rates stayed low, making floating-rate loans a good choice. But then inflation started to rear its ugly head and the Fed acted quickly to tame it. Now people locked into floating-rate loans are having a hard time making their payments. 

A loan, whether it is fixed or floating, is a bet. If you take out a fixed loan you are betting that

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