How loan rates move what buyers pay for apartment buildings
When loan rates rise, the income from your building supports a smaller loan, so a buyer has to bring more cash or offer less. On a building netting $300,000 a year, each half-point increase in the loan rate cuts the loan a lender can make by roughly $150,000 to $180,000. That’s the mechanism behind “prices follow rates”.
How the lender sizes the loan
Agency lenders size a loan with two tests and lend the smaller result. Fannie Mae’s conventional term sheet sets a maximum loan-to-value of 80% and a minimum debt service coverage ratio (DSCR) of 1.25x. Freddie Mac’s fixed-rate term sheet (April 2026) uses the same two limits for terms of seven years or more.
The coverage test says the property’s net operating income must be at least 1.25 times the annual loan payment. So the most the lender can lend is NOI ÷ (1.25 × the annual payment per dollar borrowed). That annual payment per dollar is the loan constant; on a 30-year schedule at 6.75% it’s about 0.0778.
The arithmetic
Take a building netting $300,000. At a 6% cap rate it’s worth $5,000,000, and 80% of that would be a $4,000,000 loan. But here is what the coverage test allows at different rates, 30-year amortization:
| Loan rate | Loan constant | Max loan at 1.25x | Share of a $5M price | Price where 80% LTV still works |
|---|---|---|---|---|
| 5.75% | 0.0700 | $3,427,000 | 69% | $4,284,000 |
| 6.25% | 0.0739 | $3,248,000 | 65% | $4,060,000 |
| 6.75% | 0.0778 | $3,084,000 | 62% | $3,854,000 |
| 7.25% | 0.0819 | $2,932,000 | 59% | $3,665,000 |
At 6.75%, a buyer paying $5,000,000 can borrow about 62% and must put in about $1,916,000 plus costs. A buyer who wants to put only 20% down can pay about $3,854,000. Real offers land between those two, depending on how much cash buyers in your market have and what return they need on it.
Where the rate comes from
Fixed-rate apartment loans are priced as a spread over a Treasury yield of similar term. As of October 23, 2026, the 10-year Treasury par yield was 5.00%, per the U.S. Treasury’s daily yield curve. The spread depends on the lender, the program and the property, and isn’t published by the agencies, so ask a lender for one. The worksheet uses the current Treasury yield and lets you set the spread.
What it means for timing a sale
Income is the part you control. Every dollar of NOI raises both the value at a cap rate and the loan a buyer can get. In the table, adding $30,000 of NOI, 10%, raises the max loan and the 80%-LTV price by 10%.
The other lever is the debt you already have. If your loan is assumable and carries a rate well below today’s, a buyer may pay more to keep it; ask your servicer what an assumption requires before you list.
Run your own building through the worksheet, or send it to the desk to compare with a refinance.