Cost of Funds Index

Index used by mortgage lenders on adjustable rate mortgage loans. Borrower's mortgage payments rise or fall based on the widely published COFI, which is based on what financial institutions are paying on money market accounts, passbooks, CDs, and other liabilities. The COFI tends to move far more slowly, both up and down, than other indexes for adjustable rate mortgages, such as one-year Treasuries or the prime rate. See also Base Rate.

Measure of interest paid on funds borrowed from depositors, or from other banks. The index is expressed as a percentage, such as the Federal Home Loan Bank index in mortgage lending, or the 11th district Federal Home Loan Bank index. A cost of funds index published by the Office of Thrift Supervision is often used by mortgage lenders as the base rate for adjusting rates on Adjustable Rate Mortgages.

A published data series based on the average yield paid by savings and loan associations on the funds they use to make mortgage loans.
Example: The Andrews's loan is pegged to the national Cost of Funds Index for the most recent 6-month period. For the second half of 2002, the Index was 2.94%, resulting in a one-quarter percentage point reduction in the interest rate on their loan.

The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page.

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.

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