SOFR — the Secured Overnight Financing Rate — is what replaced LIBOR for U.S. dollar loans, mortgages, and most other financial contracts. The Alternative Reference Rates Committee selected it in 2017, most LIBOR settings stopped publishing at the end of 2021, and the remaining U.S. dollar tenors ended on June 30, 2023.1U.S. Federal Housing Finance Agency. LIBOR Transition Because SOFR is a secured rate and LIBOR was unsecured, contracts that carried over from LIBOR have a small fixed spread added on top of SOFR so the economics stay roughly where they were before the switch.
What SOFR Actually Measures
SOFR measures the cost of borrowing cash overnight using U.S. Treasury securities as collateral. It comes from actual transactions in the Treasury repurchase market, not from bank estimates. The underlying U.S. repo market averaged roughly $12.6 trillion in daily exposures during the third quarter of 2025, which is why regulators picked it: a transaction base that deep is very hard to manipulate.2Office of Financial Research. Sizing the U.S. Repo Market
Every transaction behind SOFR is backed by Treasury collateral, so the rate carries almost no bank credit risk. LIBOR, by contrast, was unsecured and included a premium for the credit risk of the banks doing the lending. That difference is the reason for the spread adjustments described below.3Federal Reserve Bank of New York. Summary of Feedback Received in the ARRC Spread-Adjustment Consultation The Federal Reserve Bank of New York publishes the daily SOFR rate each business day at approximately 8:00 a.m. Eastern Time.4Federal Reserve Bank of New York. Secured Overnight Financing Rate Data
What This Means If You Have a LIBOR Loan
If you have an adjustable-rate mortgage, a home equity line of credit, a student loan, or a credit card that originally referenced LIBOR, the rate on that account has already moved to a SOFR-based benchmark. The transition was designed to be economically neutral, so a benchmark change alone should not produce a sudden jump or drop in your interest payment.
For FHA-insured adjustable-rate mortgages, HUD approved a spread-adjusted SOFR as the replacement index. Whatever per-adjustment and lifetime caps were already written into your loan continue to apply after the switch, so those caps still limit how much your payment can move regardless of the underlying rate.5Federal Register. Adjustable Rate Mortgages – Transitioning From LIBOR to Alternate Indices
Consumer credit products carry specific notice rules under federal lending regulations. Lenders must give home equity line borrowers at least 15 days’ written notice before a benchmark change takes effect. Credit cards and other open-end consumer credit plans require at least 45 days’ notice before any rate increase.6Bureau of Consumer Financial Protection. LIBOR Transition (Reg Z) Final Rule If you never received a transition notice, that doesn’t mean nothing changed. Check a recent statement for the benchmark now referenced, and contact your loan servicer if it isn’t clear.
The Spread Adjustment on Your Rate
A pure swap from LIBOR to SOFR would leave borrowers paying slightly less and lenders receiving slightly less than the original contract intended, because the secured rate sits below the old unsecured one. To hold the economics steady, the Federal Reserve’s implementing regulations fix a permanent spread adjustment for each LIBOR tenor:
- Overnight: 0.00644 percent
- One-month: 0.11448 percent
- Three-month: 0.26161 percent
- Six-month: 0.42826 percent
- Twelve-month: 0.71513 percent
These figures are based on a five-year historical median of the difference between each LIBOR tenor and SOFR, and they don’t reset over time.7eCFR. 12 CFR Part 253 – Regulations Implementing the Adjustable Interest Rate (LIBOR) Act Longer tenors carry larger adjustments because longer-term unsecured bank lending historically included more credit risk premium over Treasury-secured borrowing. New contracts written after the transition don’t get a spread adjustment, because they were never priced against LIBOR in the first place.
Term SOFR Versus Daily SOFR Averages
SOFR itself is a single overnight number, so financial products that need a rate covering a longer period use one of two conventions.
The New York Fed publishes compounded SOFR averages over rolling 30-day, 90-day, and 180-day windows, plus a SOFR Index that lets anyone calculate a compounded average over a custom period.8Federal Reserve Bank of New York. SOFR Averages and Index Data Some floating-rate notes and commercial credit lines use a simple daily average, which is easier to calculate.9Federal Reserve Bank of New York. Guide to Published SOFR Averages These structures can run “in arrears” (the rate is finalized near the end of the interest period, using SOFR from that period) or “in advance” (the rate is set at the start, using an average from a prior period). Consumer loans almost always use in-advance structures so you know your payment before the period begins.10Federal Reserve Bank of New York. How to Use SOFR
For products that need a single forward-looking rate set at the start of an interest period — much like LIBOR used to work — CME Group publishes Term SOFR in one-month, three-month, six-month, and twelve-month tenors, derived from SOFR futures and swap markets.11CME Group. Term SOFR Term SOFR is the standard choice for business loans, credit facilities, and many adjustable-rate mortgages. CME publishes the rates daily at 5:00 a.m. Central Time.12CME Group. CME Term SOFR Reference Rates – Frequently Asked Questions If your statement references “Term SOFR” with a specific tenor, that’s the published rate your lender is using.
Contracts That Couldn’t Easily Be Amended
Not every LIBOR contract had usable fallback language. Older bond indentures and trust instruments often said only “poll banks for quotes” or included no fallback at all, and amending them typically required consent from thousands of holders, which is not realistic.
Congress addressed this with the Adjustable Interest Rate (LIBOR) Act, enacted as Division U of Public Law 117-103. For any covered LIBOR contract that has no fallback provisions, or whose fallback merely references polling banks for interbank rates, the statute substitutes a Board-selected benchmark replacement based on SOFR automatically, by force of law.13Office of the Law Revision Counsel. 12 USC 5803 – LIBOR Contracts The definition of a covered contract is broad and reaches agreements, indentures, securities (debt and equity), mortgages, leases, and other obligations that reference USD LIBOR.14Federal Register. Regulations Implementing the Adjustable Interest Rate (LIBOR) Act
The Act also provides a safe harbor: no party can be sued for breach of contract or impairment of rights merely because a contract was moved to the Board-selected replacement rate. The Federal Reserve’s implementing regulations, at 12 CFR Part 253, specify which version of SOFR applies to which product type. Derivative transactions use the ISDA Fallback Rate version of SOFR. Non-derivative contracts, such as loans and bonds, use CME Term SOFR at the relevant tenor. Each is combined with the fixed spread adjustment listed above.7eCFR. 12 CFR Part 253 – Regulations Implementing the Adjustable Interest Rate (LIBOR) Act
Contracts that did have workable fallback clauses simply followed their own waterfall: a ranked list of replacement rates written into the agreement, each with its own spread adjustment, triggered once the benchmark administrator announced cessation.15ISDA. Generic Fallback Provisions Summary For most of those contracts, the waterfall landed on some version of SOFR plus the applicable tenor spread.
Other Currencies Have Their Own Replacements
LIBOR was published in five currencies, and each jurisdiction adopted its own overnight benchmark. If your question is about a dollar loan, SOFR is the answer; the rates below matter only if you hold cross-currency exposure.
- British pound: SONIA, the Sterling Overnight Index Average, administered by the Bank of England.16Bank of England. SONIA Interest Rate Benchmark
- Euro: €STR, the Euro Short-Term Rate, calculated by the European Central Bank.17European Central Bank. €STR Methodology and Policies
- Swiss franc: SARON, the Swiss Average Rate Overnight, administered by SIX.18SIX Group. SARON Rate – Benchmark for Swiss Mortgages
- Japanese yen: TONA, the Tokyo Overnight Average Rate, published by the Bank of Japan.19Bank of Japan. Interest Rate Benchmark Reform
SOFR and SARON are secured (collateralized) rates. SONIA, €STR, and TONA are unsecured. That distinction can affect hedging and relative pricing in multicurrency loan facilities.
Where to Check Current Rates
Daily SOFR, the 30-, 90-, and 180-day compounded averages, and the SOFR Index are published by the Federal Reserve Bank of New York each business day at approximately 8:00 a.m. Eastern Time.4Federal Reserve Bank of New York. Secured Overnight Financing Rate Data The New York Fed recommends referencing the rate after about 3:00 p.m. Eastern the same day, because same-day revisions are possible before then.20Federal Reserve Bank of New York. An Updated User’s Guide to SOFR
Term SOFR at the one-month, three-month, six-month, and twelve-month tenors is published by CME Group daily at 5:00 a.m. Central Time on its benchmark administration pages, and is also available through financial data vendors.12CME Group. CME Term SOFR Reference Rates – Frequently Asked Questions Match the tenor your loan documents specify, add the spread from your contract or from 12 CFR Part 253, and you have the reference rate your lender is using to set your interest.