SOFR stands for Secured Overnight Financing Rate. It's a benchmark interest rate based on actual lending transactions between banks. SOFR is replacing the older LIBOR rate and is increasingly used as the baseline for adjustable-rate loans and variable interest rates.
A variable-rate mortgage might be structured as SOFR plus 2.5%. If SOFR is currently 5%, your interest rate is 7.5%. Next month, if SOFR rises to 5.2%, your rate adjusts to 7.7%, and your monthly payment may increase.
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