11TH DISTRICT COST OF FUNDS INDEX (COFI)
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An index of the average interest paid by savings institutions in the U.S. 11th Federal Home Loan Bank District, historically used to set ARM rates.
Summary
The 11th District Cost of Funds Index (COFI) is a benchmark interest rate that reflects the average cost of funds (interest rates paid on deposits and borrowings) for savings institutions in the western United States, specifically the 11th Federal Home Loan Bank District which covers Arizona, California, and Nevada. This index was widely used as a reference rate to determine interest rates on adjustable-rate mortgages (ARMs), meaning when COFI went up or down, so would the interest rates on many home loans. Think of it as a thermometer that measures how expensive it is for banks to obtain money, which then influences what they charge borrowers.
Usage Context
Understanding COFI is important when studying mortgage products, interest rate risk, and the historical development of adjustable-rate lending. It's particularly relevant in real estate finance courses and when analyzing older ARM contracts.
Common Confusions
- Thinking COFI is still widely used today when most lenders have moved to other indexes
- Confusing COFI with other rate indexes like LIBOR or Prime Rate
- Not understanding that COFI measures what banks pay for money, not what they charge borrowers
- Believing COFI applies nationwide rather than just to the western U.S. district
