The Real Estate Beginners Guide to the Cost of Funds Index (COFI) in 2026

Key Takeaways

• The Cost of Funds Index (COFI) was a mortgage benchmark that tracked the weighted average interest rate savings institutions paid for the funds they used in mortgage lending; the best-known version was the 11th District COFI, covering California, Arizona and Nevada.
• An adjustable-rate mortgage (ARM) tied to COFI set its rate as the index plus a fixed margin: a 3.0% index and a 2% margin gave a 5.0% rate.
• The Federal Home Loan Bank of San Francisco stopped publishing COFI after the December 2021 value, released in January 2022, so COFI no longer updates.
• Existing COFI-based loans did not disappear; they follow a replacement index set by their loan documents or servicer notices.
• New adjustable-rate loans in the U.S. commonly use SOFR (Secured Overnight Financing Rate) instead.

The Cost of Funds Index (COFI) is a mortgage index that measured the average interest rate savings institutions paid on their funds, and it was used to reset the rate on certain adjustable-rate mortgages.

In real estate, mortgage rates are influenced by several financial benchmarks, one of which is the Cost of Funds Index (COFI). The COFI reflects the weighted average interest rate that financial institutions pay to obtain funds for mortgage lending. It plays a key role in determining the interest rates on certain adjustable-rate mortgages (ARMs).

For homeowners, lenders, and investors, understanding COFI is essential. Borrowers tied to a COFI-based ARM may see their monthly payments change as the index shifts. For lenders, COFI provides a measure of funding costs, directly influencing profitability and loan pricing.

This guide will explore what COFI is, how it is calculated, its impact on mortgages, and its relevance in today’s real estate market.

What Is the Cost of Funds Index (COFI)?

The Cost of Funds Index (COFI) is a financial benchmark that tracks the average interest rate paid by financial institutions—primarily savings and loan associations—for the funds they use in mortgage lending.

In practice, COFI is:

• A regional index historically based on institutions in the western U.S., especially California.
• Published monthly, reflecting the prior month’s funding costs, while it was published.
• Used to adjust interest rates on certain adjustable-rate mortgages.

How Does COFI Work in Real Estate?

When borrowers have an ARM tied to COFI, their mortgage interest rate is adjusted periodically based on changes in the index plus a fixed margin set by the lender.

1. The loan document names the index (for example, the 11th District COFI) and a margin.
2. On each adjustment date, the lender looks up the most recent index value.
3. The new rate equals the index plus the margin, subject to any rate caps in the loan.
4. The lender recalculates the monthly payment at the new rate.

For example:

• If the COFI is 3.0% and the margin is 2%, the ARM rate becomes 5.0%.
• If COFI rises to 3.5%, the ARM adjusts to 5.5%, increasing the borrower’s monthly payment.

Why Did Lenders and Borrowers Use COFI?

For Lenders:

• Reflects their actual funding costs.
• Helps align mortgage pricing with market realities.

For Borrowers:

• Often more stable than other indexes (e.g., LIBOR, SOFR, Treasury Bill index).
• Reduces sudden volatility in ARM adjustments.

Why Does COFI Matter to Investors and Agents?

Investors who buy older loan portfolios, notes or properties with legacy adjustable-rate financing need to know which index the loan references and what replaced it, because that determines future payments. Agents who work with owners of older ARMs can explain that COFI itself no longer publishes and that the borrower’s payment now follows the replacement index named by the servicer.

What Are the Advantages of COFI?

• Stability: Historically less volatile compared to other indices.
• Transparency: Published monthly and available to the public.
• Regional Accuracy: Reflects funding costs specific to institutions in certain markets.

What Are the Disadvantages of COFI?

• Regional Limitations: Primarily based on western U.S. institutions, making it less representative nationally.
• Lagging Indicator: Reflects past funding costs, so it reacts slowly to market changes.
• Declining Use: Over time, COFI has been replaced by broader benchmarks like SOFR, and it was finally discontinued in early 2022.

How Does COFI Compare With Other Mortgage Indexes?

What Is a Practical Example of COFI in Action?

A borrower takes out an ARM tied to COFI with the following terms:

• Initial fixed rate: 4.25% for 3 years.
• After the fixed period, rate = COFI + 2% margin.
• If COFI at reset is 3.1%, the new mortgage rate becomes 5.1%.

This adjustment directly changes the monthly payment, demonstrating how COFI impacts affordability.

What Is the Status of COFI in 2026?

COFI has been discontinued, in part because it had become less widely used with the rise of SOFR (Secured Overnight Financing Rate). The Federal Home Loan Bank of San Francisco, which published the 11th District COFI, announced that it would stop publishing its cost of funds indices, and its last monthly value was the December 2021 COFI, released in January 2022. The bank did not name a successor index for existing loans. Fannie Mae and Freddie Mac announced a replacement for the legacy COFI loans they own or guarantee, based on the Federal Cost of Funds Index plus a spread adjustment. Other loans follow the fallback language in their own loan documents, so in 2026 borrowers with older COFI-based loans should carefully monitor the replacement index and anticipate adjustments in their payments, and should check the servicer’s notices and the note itself.

Trends include:

• Transition to SOFR: Many lenders now prefer SOFR for its broader applicability.
• Legacy Mortgages: Some borrowers remain on older loans that originally referenced COFI until refinancing or payoff.
• Regional History: COFI was most important in areas where savings institutions dominated, especially California.

Frequently Asked Questions

What is the Cost of Funds Index (COFI)?
It’s an index measuring the average interest rate savings institutions pay for funds used in mortgage lending.

Who publishes COFI?
Historically, the Federal Home Loan Bank of San Francisco published it, until it stopped after the December 2021 value.

Does COFI still exist in 2026?
No. Its use had declined, with SOFR becoming more common for new loans, and then it was discontinued. COFI is no longer published, so legacy loans follow a replacement index under their loan documents or the servicer’s notice. SOFR is now common for new adjustable-rate loans.

How does COFI affect my mortgage?
If your ARM was tied to COFI, your rate now follows whatever replacement index your loan documents and servicer specify, plus your margin.

Is COFI better than SOFR?
COFI tended to be more stable, but it can no longer be used, and SOFR is now the preferred benchmark for most lenders.

Can I refinance out of a COFI-based mortgage?
Yes, borrowers can refinance into fixed-rate or SOFR-based ARMs.

Is COFI used outside the U.S.?
No, it was primarily regional to the western U.S.

Does COFI affect fixed-rate mortgages?
No, it only impacted adjustable-rate loans tied to the index.

Why was COFI less volatile than LIBOR?
Because it reflected actual institutional costs of funds rather than interbank lending.

Will COFI come back?
Unlikely. Its use phased out as loans shifted to SOFR and its publisher discontinued it, though legacy loans keep it relevant as a historical reference in their documents.

Related Terms and Concepts

• Adjustable-Rate Mortgage (ARM): A loan with an interest rate that changes over time based on an index.
• Margin: A fixed percentage added to an index to calculate an ARM’s interest rate.
• SOFR (Secured Overnight Financing Rate): The primary benchmark replacing LIBOR.
• Refinancing: The process of replacing an existing mortgage with a new one, often to change index ties.
• Mortgage Index: A benchmark rate that determines adjustments in ARMs.

Wrap Up – Cost of Funds Index in Real Estate

The Cost of Funds Index (COFI) was a key, though regional, benchmark in real estate lending. It measured how much financial institutions pay to borrow money, directly affecting the interest rates of ARMs tied to it.

Its use declined in favor of broader benchmarks like SOFR before it was discontinued in early 2022, but understanding COFI is still useful for borrowers with legacy ARMs and for investors analyzing older loan portfolios. In 2026, COFI represents history and legacy loans, and it matters mainly as the starting point for working out which replacement index a legacy loan now follows.