Meta Description: "Dive into how the COFI influences adjustable-rate mortgages, offering stability and predictability for borrowers' interest rates.
The Cost of Funds Index (COFI) is a financial indicator used by lenders to determine the interest rates on adjustable-rate mortgages (ARMs) and other variable-rate loans. Specifically, it reflects the average interest expense financial institutions pay for the funds they use in their lending and other business operations. This index is particularly associated with banks and other savings institutions in the Western United States. It is one of several indexes used to adjust interest rates on floating-rate loans.
The Cost of Funds Index offers a unique option for adjusting interest rates on variable-rate loans. It provides benefits and considerations that borrowers and lenders must carefully evaluate.
The COFI rate is updated monthly, but the impact on your ARM depends on the terms of your loan, including the adjustment frequency and caps on rate changes. Your loan agreement will specify how often your rate can adjust and how changes in the COFI influence your interest rate.
Significant changes in the COFI will affect the interest rate of loans tied to it, within the limits set by the loan's terms. Loans typically have rate caps that limit the degree of change to protect both the borrower and lender from drastic fluctuations.
Generally, the lender determines the index to which an ARM is tied based on their loan products. However, borrowers can shop around and compare different loan options from various lenders to find an ARM based on an index that suits their preferences and financial outlook.
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