Cost of Funds Index (COFI Mortgage) - Frequently Asked Questions FAQ

FAQ provided by The Federal Home Loan Bank of San Francisco

What does "cost of funds index" mean?
The cost of funds index (COFI) is not an interest rate. It reflects the average interest paid by savings institutions for their various sources of funds over a specified period of time. Deposits in checking and savings accounts - including certificates of deposit, money market deposit accounts, transaction accounts, and passbook accounts - are the primary source of funds for most savings institutions. Other sources of funds include loans obtained through the credit programs of the Federal Home Loan Bank of San Francisco (known as "advances") and money borrowed from other financial institutions.

Why does the COFI move differently than market interest rates?
In general, the COFI does not move up or down as rapidly as market interest rates (such as the prime rate, the discount rate, or Treasury bill rates) because many savings institutions rely on fixed rate deposits of medium- and long-term maturities as a primary source of funds. Since rates on these deposits are not affected by changing market interest rates until the deposit matures, the total interest expense paid by savings institutions in a particular month reflects, to a significant degree, interest rates that were prevalent in previous months or years.

Is the monthly COFI the only index published by the Bank?
No. The Bank also publishes semiannual weighted average cost of funds indices for Arizona, California, and the 11th District, which are based on the interest expenses of member savings institutions from January through June and from July through December each year.

How is the monthly COFI calculated?
The monthly COFI is a ratio of monthly interest costs to total funds, expressed as a percentage.

Interest costs, the numerator of the cost calculation, include the total amount of interest recognized during the month on all checking and savings accounts, all Federal Home Loan Bank advances, and all other borrowings.

Funds, the denominator of the cost calculation, consist of the simple average of the two most recent month end balances of total deposits, Federal Home Loan Bank advances, and other borrowed money.

Because the number of days in each month differs, the resulting quotient is multiplied by an adjustment factor that is calculated by dividing an average month (based on a 12-month, 365-day or 366-day year) by the actual number of days in that month.

The adjustment factors are:

365-day Year 366-day Year

February 1.086 1.052

30-day months 1.014 1.017

31-day months 0.981 0.984

The product is annualized by multiplying by 12. This product is then rounded to the third decimal place to find the weighted average cost of funds paid by 11th District savings institutions for that month.

Sample Calculation
Monthly Weighted Average Cost of Funds Index for 11th District Savings Institutions
(Dollars in Thousands)

Interest Costs on Deposits, Advances, and Other Borrowings (July) $1,420,689

Average Funds (monthend June plus monthend July divided by 2):

Deposits $162,258,542

Advances 94,468,327

Other borrowings 50,771,244

Total average funds $307,498,113

Calculation of Weighted Average Cost of Funds for July

Ratio: Interest costs divided by total average funds $1,420,689 / $307,498,113

Expressed as a percentage x 100 = 0.4620

Monthly adjustment factor x 0.984 = 0.4546

Annualized x 12 = 5.4555

Rounded to the third decimal place 5.456%

How are the semiannual cost of funds indices calculated?
Each semiannual index is a ratio of interest costs to funds, expressed as a percentage, for the six-month period ending June 30 or December 31. The index for the 11th District is not calculated by averaging the monthly indices published during the six-month period.

Interest costs, the numerator of the cost calculation, include the total amount of interest recognized during the six-month period on all checking and savings accounts, all Federal Home Loan Bank advances, and all other borrowings.

Funds, the denominator of the cost calculation, consist of the simple average of the six monthend balances of total deposits, Federal Home Loan Bank advances, and other borrowed money for the period.

The primary difference between the monthly and semiannual index calculations is that the monthend balance for the month preceding the six-month period is not used to calculate average funds for the semiannual index. In addition, no monthly adjustment factor is used, and the ratio is annualized by multiplying by 2.

When are the indices announced?
The Bank usually announces the monthly COFI after 3 p.m. California time on the last business day of the following month. For example, the August index, which reflects the interest costs incurred by member savings institutions during August, is usually announced on the last business day of September.

The Bank announces the semiannual indices approximately six weeks after the end of the semiannual period they cover. That is, the January 1 to June 30 index is published in mid-August, and the July 1 to December 31 index is published in mid-February.

Sample Timeline for Calculating the Monthly COFI
August:
Savings institutions pay interest throughout the month.

Mid-September (Approximately Sept. 10-20):
The Bank collects cost of funds data for August from its savings institution members.

Between mid-September and 12 noon on the last business day in September:
The Bank calculates the August COFI.

After 3 p.m. on the last business day in September:
The Bank announces the August COFI.

Does the Bank guarantee that it will publish the monthly COFI by 3 p.m. on the last business day of the month?
No. While the Bank makes every effort to publish the monthly COFI by 3 p.m. California time on the last business day of the following month, it does not guarantee that it will always publish the monthly COFI by that date and time, and the Bank assumes no liability for any delay in publishing the monthly COFI.

Will the Bank publish the indices if it does not receive cost of funds data from all of its member savings institutions?

The Bank's savings institution members are required to submit cost of funds data on a monthly basis. The Bank usually receives all data for a given month in the middle of the following month, generally between the 10th and the 20th of the month, and calculates the monthly cost of funds index based on that data. To be included in the calculation of the monthly cost of funds index, any new or corrected data must be received by the Bank no later than 12 noon California time on the last business day of the month. The Bank also uses the data collected monthly to calculate the semiannual cost of funds indices. To be included in the calculation of the semiannual indices, any new or corrected data must be received by the Bank no later than 12 noon California time on the scheduled date of publication.

If any of the Bank's member savings institutions do not transmit necessary data according to this timetable, the Bank will make a good faith effort to publish the cost of funds indices as scheduled, based on whatever data it has received from those member savings institutions that have reported data. If the Bank publishes a cost of funds index based on data received from fewer than all of its member savings institutions, the Bank will disclose the number of members that reported data and the total number of member savings institutions.

Will the Bank revise an index value after it has been published if it finds out that it was given inaccurate data by a member savings institution?
No. The Bank accepts data for the cost of funds indices from its member savings institutions until only 12 noon California time on the scheduled publication date for each index and publishes the indices based on data received by that time. The Bank will not revise or republish any cost of funds index based on new or corrected data received after 12 noon California time on the scheduled date of publication and expressly disclaims all liability that may arise as a result.

Does the Bank guarantee the accuracy of the cost of funds indices it publishes?
No. Although the Federal Home Loan Bank of San Francisco reasonably attempts to ensure the accuracy of the cost of funds indices it publishes, the Bank does not warrant or guarantee the accuracy of the data it receives from its member savings institutions, the accuracy of the cost of funds calculations, or the accuracy of the cost of funds indices as published. The Bank does not examine the books and records of its member savings institutions, and the Bank expressly disclaims all liability that may arise from its use of inaccurate data received from its member savings institutions in calculating the monthly and semiannual cost of funds index. In addition, the Bank expressly disclaims any liability to any person for any inaccuracy in any cost of funds index, regardless of the cause, or for any resulting damages.

When will a change in the COFI affect my mortgage payment?
Changes in the COFI may not coincide with changes in your mortgage payments because the use of adjustable rate mortgage indices varies greatly among lending institutions.

Typically, your mortgage note identifies the index to be used, when it is to be obtained, the methodology for adjusting the interest rate and mortgage payment, and the timetable for notifying you of any changes in the rate and payment.

Because of the great variation in the way indices are used in adjustable rate mortgage contracts, any questions about changes in your mortgage payment should be directed to your lender.

Cost of Funds Index Links

Cost of Funds Index - General Information

Cost of Funds Index FAQ - Frequenly Asked Questions (FAQ)

COFI Mortgage Program Guidelines