Overview
The 11th District Cost of Funds Index (COFI) is an intriguing little number that plays a big role in the western United States, specifically for those dabbling in the fine art of adjustable rate mortgages (ARMs). Originating from the sun-soaked states of Arizona, California, and Nevada, this index determines how much consumers dance with the ever-changing music of mortgage rates.
Impact on Adjustable Rate Mortgages
For those engrossed in the labyrinthine world of mortgages, the COFI acts like a financial thermostat, adjusting the climate of interest rates. Published on the last gleaming day of each month by the Federal Home Loan Bank of San Francisco, the COFI reflects the weighted average cost of savings and checking funds amongst participating banks within its district.
Mechanics and Utilization
Computation of COFI involves a melodious mix of various components, with interest paid on savings accounts hitting the highest notes in this financial symphony. Known for its leisurely stroll behind the market interest rate changes (about a two-month lag, like a tailgater at a concert), it’s a beloved index for those who appreciate its mellow fluctuations. The actual ARM rates set by lenders, however, usually rock out at about 2% to 3% higher than the COFI—depending on factors like your credit solo, loan size, and your negotiating skills backstage.
Geographic Significance
Geographically choosy, the COFI is a celebrity mostly in the western concert halls, whereas the East Coast crowd prefers to jam with the 1-year Treasury index. In a recent performance, the index marked a subtle dip to 0.814% in March 2018, serenading those tuned into its rhythm with a slightly softer rate compared to the previous month.
Related Terms
- Adjustable Rate Mortgage (ARM): A variable interest mortgage where the interest rate changes based on a specific index.
- Interest Rate: The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage.
- Financial Index: A statistical measure designed to track changes in economic or financial data.
- Federal Home Loan Bank: A government-sponsored enterprise focused on increasing affordable housing and community investment across the United States.
Suggested Further Reading
- “Mastering the Market Cycle: Getting the Odds on Your Side” by Howard Marks
- “The Only Guide to a Winning Investment Strategy You’ll Ever Need” by Larry E. Swedroe
- “Irrational Exuberance” by Robert J. Shiller
Step into the world of adjustable rates with the knowledge of COFI, and perhaps your next financial performance could be a chart-topping hit!
