SOFR-Indexed ARMs
The Secured Overnight Financing Rate (SOFR) is based on actual transactions in the Treasury repurchase (repo) market, where extensive trading happens daily. This is the market where investors offer borrowers overnight loans backed by their U.S. Treasury bond assets.
The Alternative Reference Rates Committee (ARRC) has selected SOFR as its preferred alternate index for U.S. dollar-denominated SOFR contracts.
SOFR ARMs eligible for sale to Freddie Mac use an index based on a 30-day compounded average of SOFR (SOFR Index). The Federal Reserve Bank of New York (New York Fed) publishes 30-, 90- and 180-day compound SOFR averages available here.
For information on Freddie Mac-owned loans that are transitioning from the London Interbank Offered Rate (LIBOR) index to CME Term SOFR plus a tenor spread adjustment (as published by Refinitiv Limited), refer to the Reference Rates Transition website.
Who are SOFR-Indexed ARMs for?
- Financially savvy borrowers who plan to move before the initial fixed-rate period ends
- First-time homebuyers looking for lower initial rates and monthly payments, and who understand that their rate will increase
- Refinance or move-up borrowers looking for additional financing options
The information on this page is not part of, and is not a replacement or substitute for, the requirements found in the Freddie Mac Single-Family Seller/Servicer Guide and your other Purchase Documents.
SOFR-Indexed ARMs Product Features
- Special Requirements
- 3/6-month, 5/6-month, 7/6-month and 10/6-month nonconvertible SOFR-indexed ARMs.
- For all SOFR-indexed ARMs, the margin must be equal to or greater than 100 basis points and less than or equal to 300 basis points.
- Credit Fees
Credit Fees may apply based on the individual characteristics of the mortgage. See Guide Exhibit 19 for details on applicable fees.
- Delivery Requirements
See Guide Section 6302.7(b) for delivery instructions for SOFR-indexed ARMs.
- Down Payment or Closing Costs
- Secondary financing
- Shared equity plans
- Eligible Mortgage Products
- Home Possible® mortgages may be 7/6-month and 10/6-month ARMs only if secured by 1- to 4-unit property; 5/6- month ARMs are only allowed if secured by 1- to 4-unit property other than a manufactured home,
- Financed Permanent Buydown (5/6-month, 7/6-month and 10/6-month ARMs only),
- Construction conversion mortgages, renovation mortgages and mortgages secured by manufactured homes (7/6 month and 10/6-month ARMs only).
- Manufactured homes (7/6-month and 10/6-month ARMs only).
- ARMs secured by investment properties are eligible for sale if the borrower owns only one financed investment property. If the borrower owns more than one financed investment property, the investment property mortgage sold to Freddie Mac must be a 7/6-month or 10/6-month ARM.
- CHOICEHome® eligible ARMs are 5/6-month, 7/6-month and 10/6-month ARMs. See Guide Section 5703.9.
- CHOICERenovation® mortgages must be first lien mortgages and may be any mortgage product or offering eligible under this Guide, including Home Possible® mortgages, unless specifically described in Guide Section 4607.2.
- GreenCHOICE Mortgages®. See Guide Chapter 4606 for details.
- Super Conforming Mortgages. See Guide Section 4603.3 for requirements.
- Maximum LTV Ratios
SOFR-indexed ARMs must comply with the maximum LTV ratios in Guide Section 4203.4.
- Eligibility/Underwriting
- SOFR-indexed ARMs may be manually underwritten.
- SOFR-indexed ARMs may be submitted to Loan Product Advisor® (LPASM).
- Property Type/Eligible Properties
- 1- to 4-unit primary residences, including condominiums, PUDs and manufactured homes
- Second homes
- 1- to 4-unit investment properties
- Transaction Type
- Purchase
- "No cash-out" refinance
- Cash-out refinance