What is the acronym COFI commonly referred to in mortgage transactions?

The acronym COFI stands for Cost of Funds Index. This index is crucial in mortgage transactions as it is often used as a benchmark for adjustable-rate mortgages (ARMs). In particular, it reflects the average interest rates that depository institutions pay for funds, which gives lenders a way to determine their costs of capital.

Using COFI helps both lenders and borrowers understand how interest rates can fluctuate based on the broader market conditions. This understanding is essential for borrowers who are considering an ARM, as their monthly payments can vary depending on changes to the index. Choosing the appropriate index, like COFI, can significantly impact the affordability and terms of a mortgage.

In contrast, the other options provided are not recognized terms in the context of mortgage transactions, making them less applicable in this scenario. Understanding COFI helps loan officers communicate effectively about fluctuations in interest rates and how they relate to mortgage products, ensuring clients are well-informed about their potential loan costs.