11th District Cost of Funds Index (COFI)

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11th District Cost of Funds Index (COFI)

What it was

The 11th District Cost of Funds Index (COFI) was a monthly index that represented the average interest rate paid by savings institutions in Arizona, California, and Nevada on checking and savings accounts. Launched in 1981 and published by the Federal Home Loan Bank of San Francisco, COFI was commonly used by mortgage lenders to reset interest rates on adjustable-rate mortgages (ARMs) in the western United States.

How it was calculated

  • COFI was an average based largely on the interest paid on savings accounts held by member institutions of the Federal Home Loan Bank of San Francisco.
  • Because savings-account rates change slowly, COFI exhibited low volatility and typically lagged broader market interest-rate movements by about two months.

How it affected adjustable-rate mortgages (ARMs)

  • COFI served as an index for ARM rate adjustments; the mortgage rate itself was not equal to COFI but was set as COFI plus a spread.
  • Typical ARM rates tied to COFI were about 2%–3% higher than the published index, with the exact spread varying by borrower credit, loan size and terms, and negotiation.
  • The slow-moving nature of COFI meant ARM payments adjusted more gradually than indices tied directly to market yields, which could be advantageous when market rates were rising rapidly but less favorable when rates were falling.

Regional use and comparison

  • Because COFI used data from three western states, it was primarily used in the western U.S.
  • Other regions often used different indices; for example, the 1-year Treasury index was commonly used in the eastern U.S.
  • Compared with market-based indices (Treasury yields, LIBOR, SOFR, etc.), COFI generally produced smoother, less volatile ARM adjustments.

End of publication and replacement

  • The Federal Home Loan Bank of San Francisco stopped publishing the COFI on January 31, 2022.
  • Freddie Mac created the Enterprise 11th District COFI Replacement Index to serve as a successor benchmark for lenders and servicers that had relied on the original publication.

What borrowers should know

  • If your mortgage is tied to COFI or its replacement, expect rate adjustments that are slower and less volatile than market-based indices.
  • Check the margin (spread) added to the index in your loan documents; this determines your actual interest rate beyond the index value.
  • When evaluating ARMs, compare the index type, margin, caps, and historical behavior of the index to assess potential payment variability.

Key takeaways

  • COFI was a historically regional, savings-account–based index used mainly in the western U.S. for ARMs.
  • It tended to change slowly, acting as a lagging indicator of market interest rates.
  • Publication ceased in 2022; a replacement index was created to continue providing a COFI-like benchmark.