Cost of Funds Index (COFI) Law and Legal Definition

Cost of funds index (COFI) is an index used by mortgage lenders on adjustable rate mortgage loans. It is a regional average of interest expenses incurred by financial institutions, which in turn is used as a base for calculating variable rate loans. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank. Interest rates on COFI loans and mortgages tend to fluctuate more slowly than variable-rate loans linked to other indexes. COFI 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. Borrower's mortgage payments rise or fall based on COFI, which is based on what financial institutions are paying on money market accounts, passbooks, CDs, and other liabilities.