KNOWLEDGE CENTER

A Cost of Funds Index or COFI is a regional average of interest expenses incurred by financial institutions, which in turn is used as a base for calculating variable rate loans. The interest rate on an adjustable rate mortgage, for example, is often linked to a regional COFI specified in the particular loan documents. COFIs, in turn, are usually calculated by a self-regulatory agency like Federal Home Loan Banks. In California, for example, many home mortgage loans are indexed to the Federal Home Loan Bank of San Francisco. Interest rates on COFI loans and mortgages tend to fluctuate more slowly than variable-rate loans linked to other indexes.

The COFI Cost of Funds Index is a popular index for Pay Option ARM negative amortization home loans.

The Cost of Funds Index is generally a very stable index as well as a lagging indicator of interest rate movements. The cost of funds index is a weighted average of the interest rates paid out for checking, savings, and other depository accounts by a bank. Since banks do not quickly raise the deposit interst rates offered, the COFI tends to be a stable index.

The COFI has historically been one of the lowest index measures in the country.

COFI is a index, Cost of Funds Index. Many lenders use this source of funds to lend on adjustable loans. Historically it has been a favorable index and is one of the most popular among lenders and borrowers alike for adjustable loans. As with any adjustable loan, the index is a key factor as is the margin, since the margin is what the rate will be set at for the first adjustment. Look for loans with low margins.