Spread Compression Calculator

Credit spreads tighten and widen with market conditions. This calculator sizes the impact on coupon and proceeds.

Balance

Current spread (bps)

Projected spread (bps)

Benchmark rate %

Annual interest savings

$75,000

Current all-in coupon %

7.250%

Projected coupon %

6.500%

How the math works

Savings = balance × (current coupon − projected coupon).

Each 25 bps of spread compression on a $10M loan saves $25k annually. Over a 5-year hold that's $125k. Refinance when compression covers prepay penalty by at least 2-3x break-even.

How to Use

Enter current spread over benchmark.
Enter projected tighter spread.
Enter benchmark rate.
Enter balance.
Read savings.

Frequently Asked Questions

Spread drivers?

Credit cycle (risk appetite), asset class (multifamily tightest, office widest currently), sponsor quality, market supply/demand. Spreads move 50-200 bps over cycle peaks to troughs.

Timing spread bets?

Very hard. Spread forecasting is similar to equity market timing — many get it wrong. Position for base case; opportunistically refinance when tight spreads coincide with low benchmark rates.

Widening risk?

When spreads widen 100+ bps quickly (2020, 2022-2023), takeout proceeds shrink and borrowers face cash-in refis. Reserves and contingent equity lines protect against widening stress.

How often should I rerun this?

Rerun this calculator whenever inputs change materially — new rent roll data, rate moves, loan balance updates, or quarterly operating data. For active deals, monthly refresh is typical. For stabilized assets under monitoring, quarterly is fine. Treat the output as a decision tool, not a one-time answer — market conditions evolve and so should your analysis.