The Cost of Funds Index is primarily used to determine interest rates on which type of loans?

The Cost of Funds Index (COFI) is a benchmark that is primarily associated with adjustable-rate mortgages (ARMs). This index reflects the cost of borrowing for financial institutions, which influences the interest rates they charge on loans. ARMs are designed to have interest rates that adjust periodically based on changes in market conditions, and the COFI serves as a baseline for these adjustments.

When the interest rates of ARMs adjust, they are often tied to this index along with a margin added by the lender. This means that when the cost of funds increases or decreases, borrowers with ARMs will experience corresponding changes in their interest rates, making COFI a key indicator for these types of loans.

In contrast, fixed-rate mortgages typically have a constant interest rate throughout the life of the loan, which makes them unaffected by such indices. Conventional loans can encompass a mix of fixed and adjustable structures, but they are not specifically tied to the COFI for their interest rate determination. Home equity lines of credit may also have various methods for determining interest rates, but they generally are not directly linked to the COFI in the same way ARMs are. Thus, the primary relationship between COFI and the type of loans is with adjustable-rate mortgages.