measure of interest paid on funds borrowed from depositors, or from other banks. The index is expressed as a percentage, such as the Federal Home Loan Bank index in mortgage lending, or the 11th district Federal Home Loan Bank index. A cost of funds index published by the Office of Thrift Supervision is often used by mortgage lenders as the base rate for adjusting rates on adjustable-rate mortgages.
a published data series based on the average yield paid by savings and loan associations on the funds they use to make mortgage loans.
Example: The Andrews's loan is pegged to the national Cost of Funds Index for the most recent 6-month period. For the second half of 2002, the Index was 2.94%, resulting in a one-quarter percentage point reduction in the interest rate on their loan.
