If you’ve had to purchase a rate cap at any point in the past couple years, then you’ve felt the pain of dramatically increased premiums. Fortunately, signals that the Fed is close to cutting rates have led cap premiums to decrease by 50% from the peak in Q4 2023.
But there may still be more room for cap costs to fall. Historically, cap costs drop substantially after the last hike but the Fed’s “higher for longer” rhetoric kept rates elevated, delaying that drop. If we continue along historical trends, we could see cap costs fall another 25% from the peak around the time markets are expecting the first rate cut.
For context, the below quotes are for a generic 1 and 2 year cap on $25mm, including estimates for where the costs were at the peak, where they are now, and where they’re expected to go post-cut (assuming we follow trend).
If you’d like a current quote on the cost of your upcoming hedge or need help exploring your options, reach out to the experts at PensfordTeam@Pensford.com or (704) 887-9880.
P.S. – Pensford and LoanBoss are heading out to NMHC next week. If you’re going and want to connect – shoot them a message on LinkedIn!
