An economic indicator that lenders use to set an adjustable rate mortgage's (ARM) interest rate

Each ARM is tied to a specific index. Since some indices move up and down faster than others, it's wise to find out which index is connected to your ARM. Three common indices used by lenders are: (1) Certificate of deposits (CD), which go up like molasses, but shoot down quickly (2) Treasury bills, an index that reacts quickly to market changes based on the average interest rate that the government pays on its debt and (3) Cost of funds index (COFI), a stable index based on the average interest rate that banks in certain states pay their customers. The 11th District COFI, for example, covers banks in California, Arizona and Nevada

See: Adjustable rate mortgage, Interest\Interest rate, Margin