What is 11th District Cost of Funds Index

11th District Cost of Funds Index is a monthly cost of fund index (COFI) portraying the weighted average interest paid by western states financial institutions on savings and checking accounts. The financial institutions qualified for the COFI are those operating in the 11th district. These include places like Arizona, Nevada, and California. The index was launched in 1981 and is published on the last day of every month. 11th District Cost of Funds Index is one of the numerous indices used by mortgage lenders to adjust the rate of interest on an adjustable rate mortgage (ARM).

COFI is also among the most popular indices in the western states. As stated in the above explanation, it is published on the last day of every month. It only applies to members of Federal Home Loan Banks of San Francisco. It is the cost of funds on western saving institutions

How The 11th District Cost Of Funds Index Is Used

Whenever the ARM mortgage is adopted, the interest rate on a mortgage rises up and down along with some of the standard interest rates that were determined by the lender.

COFI is computed with the use of various different factors. However, the most significant among these factors is the interest paid on savings accounts involving the largest weighting on the average. As a result, the rate at which the market interest rate change is very slow, the index itself tends to have low volatility. COFI is generally considered to be a two-month lagging indicator of market interest rates.

Generally, the interest rate on a mortgage does not conform with the COFI, instead, the ARM rate is usually higher than the COFI with 2% to 3%. The rate of which it is more than the COFI is often determined by the credit history of the borrower, the negotiation ability of the borrower with other banks and the size and terms of the loan with other factors.

The major reason COFI is primarily used in the western states is that it is computed using data from the three western states in the U.S. In the eastern region, the 1-year Treasury index is used.