SOFR Interest Rate Cap Breakeven Calculator

Quantify the floating interest you would pay without protection, compare it to capped borrowing costs, and see how quickly a SOFR cap premium can pay for itself under your chosen horizon.

Outstanding principal balance protected by the interest rate cap.
Annual strike rate on the SOFR cap, entered as a percentage.
Upfront premium paid to purchase the cap.
Forecast average SOFR over the analysis horizon (e.g., forward curve average).
Defaults to 12 months if left blank. Match to the cap expiry or evaluation window.

Indicative modelling only. Confirm assumptions with your lender and risk advisor before executing hedges.

Examples

  • $18,000,000 notional, 5.25% strike, $240,000 premium, 6.10% expected SOFR, 18-month horizon ⇒ Floating cost $1,647,000.00 USD; capped interest $1,417,500.00 USD; net benefit −$10,500.00 USD; break-even average SOFR 6.14%.
  • $22,000,000 notional, 5.40% strike, $265,000 premium, 6.30% expected SOFR, 24-month horizon ⇒ Floating cost $2,772,000.00 USD; capped interest $2,376,000.00 USD; net benefit $131,000.00 USD; break-even average SOFR 6.00%.

FAQ

What horizon should I choose?

Use the months remaining until the cap expires or until you plan to exit the financing. The default assumes a 12-month look if no value is provided.

How do I reflect an amortising loan?

Approximate the average outstanding balance by taking the midpoint between the current and projected balances and entering that value as the notional, or rerun the calculator at multiple balance checkpoints.

Can I model different rate paths?

Run the calculator multiple times with alternative SOFR averages or forward curve scenarios, then compare the resulting net benefit and payback estimates to gauge hedge performance.

Why is the net benefit negative?

If your expected average SOFR is below the strike, the cap may not provide savings after accounting for the premium. Consider a lower strike, shorter horizon, or alternative hedges.

Additional Information

  • Baseline interest multiplies the notional by the expected average SOFR and the analysis horizon in years.
  • Capped interest assumes the borrower pays the lower of the expected average SOFR or the cap strike over the same horizon.
  • Break-even SOFR adds the premium cost, annualised across the horizon, to the strike rate to show the average path required for the hedge to pay for itself.
  • If the forward rate never crosses the strike, the calculator flags that the cap is out of the money and no payback period exists.
  • ROI contextualises whether the premium delivers a positive return once savings are netted against upfront cost.

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