Key Takeaways
- Monthly weighted-average interest rate for 11th District savings institutions.
- Reflects cost of deposits, FHLB advances, and other borrowings.
- Used for adjustable-rate mortgages with slow, stable rate changes.
- Discontinued in 2022; replaced by Freddie Mac's COFI Replacement Index.
What is 11th District Cost of Funds Index (COFI)?
The 11th District Cost of Funds Index (COFI) is a monthly benchmark interest rate reflecting the weighted-average cost of funds for savings institutions in the Federal Home Loan Bank of San Francisco's 11th District, which covers Arizona, California, and Nevada. It primarily tracks the interest expenses on deposits, Federal Home Loan Bank advances, and other borrowings for these institutions.
This index has historically been important for adjustable-rate mortgages (ARMs) and other variable-rate loans in the western United States, providing a regional alternative to national benchmarks like the par yield curve.
Key Characteristics
COFI has several defining features that differentiate it from other interest rate indexes.
- Geographic focus: Applies exclusively to savings institutions headquartered in the 11th District, including California, Arizona, and Nevada.
- Weighted-average cost: Calculated as the ratio of total interest paid to average outstanding balances, emphasizing deposits over other borrowings.
- Lagging index: Reflects interest costs with a one-month delay, smoothing volatility through a form of data smoothing.
- Discontinuation: Officially discontinued by the Federal Home Loan Bank of San Francisco in early 2022 due to industry consolidation.
- Replacement index: Freddie Mac introduced an Enterprise 11th District COFI Replacement Index to approximate historical COFI levels.
How It Works
COFI is derived by aggregating interest expenses and outstanding balances reported monthly by savings institutions. The index weights the various sources of funds, primarily deposits, to calculate a composite borrowing cost.
Lenders typically tie ARMs and other variable-rate loans to COFI plus a fixed margin, adjusting interest rates monthly based on the published index. This slow-moving index provides predictability in volatile interest rate environments, unlike faster indexes such as the par yield curve.
Examples and Use Cases
COFI has been widely used in mortgage and lending markets within the western U.S., with several practical applications including:
- Residential ARMs: Many California lenders historically offered mortgages linked to COFI, providing stability in monthly payments despite market fluctuations.
- Commercial loans: Real estate developers and businesses in the 11th District region often secured variable-rate loans tied to COFI for predictable financing costs.
- Investment strategies: Investors tracking interest rate trends in western financial markets may consider resources like the best bond ETFs to complement their understanding of rate movements.
- Corporate finance: Major companies such as Delta routinely manage their financing costs in part by monitoring regional interest rate benchmarks relevant to their operations.
Important Considerations
While COFI provides a stable and regionally relevant benchmark, its lagging nature means it may not immediately reflect rapid market rate changes, impacting borrowers differently than faster-moving indices. The discontinuation of the original index requires lenders and borrowers to adapt to replacement benchmarks.
If you are evaluating loans or investments influenced by regional interest rates, consider how COFI’s characteristics affect your cost of funds and repayment schedules. Diversifying your research with guides on low-cost index funds or bank stocks can also provide broader financial context and opportunities.
Final Words
The 11th District COFI offers a historically stable benchmark for adjustable-rate loans in the Western U.S., though its original form was discontinued in 2022. If you’re considering ARM options tied to COFI or its replacement index, review current rates carefully and compare offers to ensure you understand how changes might affect your payments.
Frequently Asked Questions
The 11th District COFI is a monthly weighted-average interest rate benchmark reflecting the cost of funds, mainly deposits and borrowings, for savings institutions in the Federal Home Loan Bank of San Francisco's 11th District, which includes Arizona, California, and Nevada.
COFI is calculated as the ratio of total interest paid during the month to the average outstanding balance of funds, weighted by fund type such as deposits, FHLB advances, and other borrowings. This weighted approach emphasizes deposits, resulting in a slower response to market interest rate changes.
The index was discontinued due to a sharp decline in reporting institutions—from over 200 in 1981 to just eight by 2021—caused by industry consolidation, mergers, and charter changes. Freddie Mac introduced a replacement index to approximate historical COFI levels.
Lenders often tie ARMs to COFI plus a fixed margin, resetting rates monthly based on the published index. Because COFI moves slowly, it provides predictability and stability for borrowers in fluctuating interest rate environments.
The 11th District COFI applies exclusively to savings institutions headquartered in the Federal Home Loan Bank of San Francisco's 11th District, which includes the states of Arizona, California, and Nevada.
The COFI is published on the last business day of the month following the reporting period, typically after 3 PM Pacific Time. For example, the value for March is released at the end of April.
COFI includes deposits such as savings and checking accounts, Federal Home Loan Bank advances, and other borrowings like commercial bank loans, with deposits representing the largest share and driving the index's lagging nature.
