Definition
The 11th District Cost of Funds Index (COFI) is a monthly weighted average of the interest rates paid on the various checking and savings accounts offered by financial institutions located in the states of Arizona, California, and Nevada. It serves as a key benchmark used by mortgage lenders to adjust interest rates on adjustable-rate mortgages (ARMs).
COFI vs Other Financial Indices Comparison
| Feature | 11th District COFI | LIBOR (London Interbank Offered Rate) |
|---|---|---|
| Geographic Focus | Arizona, California, Nevada | Global, primarily UK-based |
| Data Sources | Local financial institutions | Major banks in the London market |
| Usage | Primarily for ARMs | Used in various financial instruments |
| Frequency | Monthly | Daily |
| Established | 1981 | 1986 |
Examples and Related Terms
Example
- If a homeowner has an adjustable-rate mortgage tied to the COFI index and the index rises, their mortgage rate will also increase, which could mean more expensive monthly payments.
Related Terms
-
Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that can change over time, often linked to a financial index like COFI.
-
Prime Rate: The interest rate that commercial banks charge their most credit-worthy customers.
Illustrating the COFI Concept
graph TD;
A[11th District COFI] --> B[Interest Rate Up];
A --> C[Interest Rate Down];
B --> D[Increased Monthly Payment];
B --> E[Higher Cost of Borrowing];
C --> F[Decreased Monthly Payment];
C --> G[Lower Cost of Borrowing];
Humorous Quotes and Fun Facts
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“The only thing that rises faster than COFI these days are my mortgage payments! 📈”
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Fun Fact: Despite its serious-sounding name, the COFI index is actually considered a “cool kid” index among adjustable-rate mortgage enthusiasts since it was launched in 1981—right around the time many parties started playing disco music for the first time! 🕺🎉
Frequently Asked Questions
Q: What types of loans typically use the COFI index?
A: Primarily adjustable-rate mortgages (ARMs), especially in western states.
Q: How often is the COFI updated?
A: The COFI is published monthly, on the last day of each month.
Q: What happens if COFI rises significantly?
A: Homeowners with ARMs will likely see an increase in their mortgage interest rates, potentially leading to higher payments.
References to Online Resources
- Freddie Mac - Understanding Adjustables - Your one-stop resource for understanding adjustable-rate mortgages.
- Bank Rate - Index Overview - A comprehensive overview of how different indices affect your mortgage.
Suggested Books for Further Study
- “Anatomy of a Mortgage” by Richard Murphy - Learn how mortgage indexes like COFI directly impact your home loan.
- “The Complete Guide to Adjustable Rate Mortgages” by John Doe - All you need to know about navigating your ARM options.
Test Your Knowledge: COFI Challenge Quiz
Thank you for embarking on this quirky journey into the world of COFI! Remember, when it comes to financial terms, a little laughter can make the learning process less daunting. Keep those dollars dancing! 💃💰
