The Cost of Funds Index (COFI), a popular index tied to adjustable-rate mortgages, reached a record low last month, according to the Federal Home Loan Bank of San Francisco.
It fell to 1.637 percent in March, down from 2.003 percent in February and 3.280 a year ago.
That’s the lowest the COFI has ever been since it was first tracked in July 1981; its previous low was 1.708 percent in May 2004.
As a result, those with monthly-adjusting mortgages tied to the index are enjoying substantially lower fully-indexed mortgage rates.
So if you’re trapped in an option-arm tied to the COFI, which was originated in August 2006 when the index stood at 4.277, your effective interest rate would have fallen 2.65 percent since then.
And assuming your margin, which together with the index makes up the fully-indexed rate, was 2.25 percent, you’d have a below-market rate of 3.887 percent.
That’s not to say that the index can’t rise back up to more historical levels, but it does spell relief for those who are unable to refinance, possibly because of negative amortization or other factors.
It may also make you think twice about getting a refinance, despite the long-term benefits of a 30-year fixed.
The COFI is known as one of the more stable and slower moving mortgage indexes, reflecting the interest expenses of member savings institutions in California, Arizona, and Nevada.
Other mortgage indexes remain quite low as well, such as the Libor, meaning things aren’t as bad for the ARM-borrowers as some may think.
Makes you wonder if high interest rates were really the problem, or just a pesky nuisance for the homebuilders.