How to Get a COFI Loan
What it is
COFI stands for Cost of Funds Index. A COFI loan is a loan that is gaining popularity recently for homeowners. It is beginning to replace the adjustable rate mortgage, or ARM. This type of loan has a very low introductory interest rate for first one to three months. After that, the loan rate becomes a combination of the chosen index and the borrower's margin. COFI loans give borrowers a sense of security. The minimum payment changes annually. On any given year, the monthly payment can only increase by 7.5 percent of the previous year's monthly payment.
The minimum payment remains the same for the first year and only increases gradually each year after. Even so, the actual interest rate can climb higher based on what the chosen index is doing. There is an important difference between the amount of the payment and amount being charged as a result of the actual interest rate. If the rate of interest is higher than the amount being paid in the minimum payment, then the difference is added to the principal balance and is called negative amortization.
Who it's for
Typically with COFI loans, borrowers have great flexibility when it comes to making payments. Each month, borrowers can decide if they want to make the minimum payment, an interest only payment, a 30-year fully amortizing payment or a 15-year fully amortizing payment. The COFI loan offers an exceptionally low rate and flexibility.
What you need to do to apply
In order to obtain a COFI loan, interested borrowers should contact a lending institution and inquire about this specific type of mortgage. Banks will need confidence of repayment, a credit report, and other personal and financial information, as well as information about what the cash may be used for. A property appraisal may also be required.
