What is the 11th District Fund Cost Index?
The 11th District Cost of Funds Index (COFI) is a weighted monthly average of the interest rates paid on chequing and savings accounts offered by financial institutions operating in Arizona, California and Nevada. It is one of the many indices used by mortgage lenders to adjust the interest rate of adjustable rate mortgages (ARM) and was launched in 1981. With an ARM mortgage, the interest rate of a mortgage goes up and down with a standard interest rate chosen by the lender, and COFI is one of the most popular indices in western states.
Released on the last day of each month, COFI represents the cost of funds for Western savings institutions that are members of the Federal Home Loan Bank of San Francisco, a self-regulatory agency, and that meet the Bank’s criteria for appear in the index.
Understanding the COFI of the 11th district
The 11th District Cost of Funds Index (COFI) is calculated using several different factors, with interest paid on savings accounts being the largest weight in the average. As a result, the index generally has low volatility and tracks changes in market interest rates somewhat slowly; it is generally considered to be a two month lagged indicator of market interest rates. The interest rate on a mortgage will not correspond to COFI, but the ARM rate is generally 2% to 3% higher than that of COFI, depending on the borrower’s credit history, the size and conditions of the loan, the borrower’s ability to negotiate with the bank and many other factors.
Because it is calculated using data from three western states, COFI is primarily used in the western United States, while the 1-year Treasury index is the measure of choice in the region Eastern. On April 30, the Federal Home Loan Bank of San Francisco announced a COFI for March 2020 of 0.814%, slightly lower than February.