A three-year cap on a five-year hold

A rate cap buys a ceiling on SOFR plus spread for a stated term. Sponsors often buy a three-year cap on a five-year hold because the premium is lower. The last two years still sit in the book. They are just unhedged.

REIN takes index, spread, strike, and cap term as inputs. Debt service in the capped years uses the strike when the index would otherwise print through it. After the cap expires, the model uses the index plus spread with no ceiling. The first unhedged year is labeled. IRR and DSCR in those years are the ones that usually move IC.

Sensitivity is not a single slider. Hold period and exit cap are a grid. You can shock the index and see the capped years hold while the tail does not. That is the conversation a lender is already having. The desk should show it before the term sheet does.

Save the case. Compare it to the next version when the cap quote changes. Attach the cap confirmation to the financing task. The number and the file stay on the same deal.