11th District Cost of Funds

If you are getting mortgage loan, you have two main alternatives: a fixed-rate loan, where the interest rate stays the same for the life of your loan; and an adjustable-rate mortgage, or ARM, where the interest rate on your mortgage moves up and down along with some standard interest rate chosen by your lender. One of these standard interest rates is the 11th District Cost of Funds, the full name of which is the 11th District Monthly Weighted Average Cost of Funds Index (COFI). The 11th District Cost of Funds was launched in 1981 and has become one of the most popular mortgage interest rate indexes in the western US. (In the eastern US, the standard measure is the Treasury Index.)

COFI is simply an average rate interest paid by California, Arizona and Nevada banks on its deposit accounts. Of course, your ARM mortgage rate won’t be equal to this rate, it is far too low (e.g., in February 2009, it was just 2.003%). Your ARM rate might be 2-3% above COFI depending on your credit history, the size and terms of the loan, your ability to negotiate with the bank and many other factors.

COFI moves up and down with the economy. When the American economy slows down, COFI rates typically fall. When economy picks up, COFI rates slowly move up. Unfortunately, COFI rates can also move up in recession, if the country suffers from significant inflation. That would be the worst outcome of all, since recession means poor job security and low income, and it is hard to deal with increasing mortgage rates at such times.