Cost of Savings Index (COSI)

What Is the Cost of Savings Index (COSI)?

The Cost of Savings Index (COSI) is a famous index utilized for working out the interest rate of certain adjustable-rate mortgages (ARMs). Formally known as the Wells Fargo Cost of Savings Index, it depends on the interest rates that Wells Fargo Bank pays to people on certificates of deposit (CDs).

Like different ARMs, COSI-connected loans transfer part of the risk from the lender to the borrower. While the early on rates are more good than the terms for fixed-rate loans, changing interest rates can mean that a few customers might wind up paying more money than they would have paid in any case. Now and again, they might even wind up venturing further into the red.

Figuring out the COSI

The COSI is viewed as among the most stable ARM indexes in the industry. By and large, it is less unstable than other famous benchmarks, like the one-month London Interbank Offered Rate (LIBOR) index. As CD interest rates move more slowly than market interest rates by and large, the COSI additionally will in general lag behind other mortgage indexes with regards to adjusting to changes in interest rates.

The COSI is calculated consistently and used to decide the interest rate on ARMs. The interest rate that mortgage-holders need to pay is the sum of the index value plus an extra amount called the ARM margin.

History of COSI

The COSI was initially distributed by World Savings Bank, a subsidiary of Golden West Financial Corp. Thus, it was usually alluded to as the GDW COSI or World Savings COSI. In 2006, Wachovia Corp. acquired Golden West, and the index turned into the Wachovia COSI. In 2009, Wachovia turned out to be part of Wells Fargo, and in November of that year, the index turned into the Wells Fargo Cost of Savings Index or Wells COSI.

Advantages and disadvantages of COSI-Indexed Mortgages

Loans with a COSI-connected interest rate might offer captivating flexibility and payment options compared to different mortgages. ARMs can be fundamentally less expensive than fixed-rate mortgages, essentially during the initial not many years, when the basic rates are low. Numerous COSI-indexed ARMs have least payment change covers — which limit the amount that the regularly scheduled payment can increment — as well as lifetime interest rate caps.

Since the COSI is steadier than different indexes, ARMs tied to this index benefit mortgage-holders when rates are rising. They're less advantageous when rates are falling.

On the downside, COSI-indexed mortgages tend not to offer periodic interest rate covers, which limit how much the interest rate can rise at one time. This makes the possibility for negative amortization: If the interest rates rise to the point that the month to month mortgage payment doesn't cover the interest due, any unpaid interest will get added to the loan balance, so the overall amount due on the mortgage increments.

COSI Pros and Cons

Pros

Like other ARMs, COSI-linked mortgages open with attractive lower rates.
COSI is steadier than other indexes, meaning rates will rise more slowly than other ARMs.
Many COSI-linked loans have payment change caps, which limit the amount that your loan can go up every month.

Cons

In the long run, interest rate adjustments can sometimes exceed fixed-rate mortgages.
Steady COSI rates are a disadvantage when interest rates are falling.
If a mortgage does not offer interest caps, it is possible for interest rates to rise so high that they exceed the monthly payment—resulting in negative amortization.

## Wells COSI Rates

The Wells COSI depends on the interest rate that Wells Fargo pays on CDs, otherwise called personal time deposits. The index is calculated utilizing the weighted average of all of the interest rates paid on CDs starting around the last business day of every month. The company declares every month's COSI on the last business day prior to the fifteenth day of the following calendar month.

0.18%

The current value of the Wells Fargo Cost of Savings Index (COSI), as of September 2021.

The index value is communicated as a percentage. In November 2009, when Wells Fargo assumed control of the index, the COSI remained at 2.4%. The rate has declined from that point onward, in spite of the fact that it ascended as high as 1.75% in mid-2019 before continuing to fall. As of October 2021, the Wells COSI was 0.18%.

Cost of Savings Index FAQS

The Bottom Line

One famous index used to work out the interest rates on some adjustable-rate mortgages (ARMs) is known as the Cost of Savings Index (COSI). Starting around 2009, the COSI has been gathered every month by Wells Fargo, in view of the interest rates paid on the bank's certificates of deposit (CDs). It is viewed as one of the most stable ARM indexes in the industry — an advantage when interest rates are climbing, however a drawback when they are falling. Numerous COSI-indexed ARMs have least payment change covers and lifetime interest rate covers — however they may not offer periodic interest rate covers.

Highlights

Numerous COSI-indexed ARMs have least payment change covers and lifetime interest rate covers — yet they may not offer periodic interest rate covers.
Beginning around 2009, the COSI has been aggregated consistently by Wells Fargo, in view of the interest rates paid on the bank's certificates of deposit (CDs).
The Cost of Savings Index (COSI) is a well known index used to work out the interest rates on some adjustable-rate mortgages (ARMs).
The COSI is viewed as one of the most stable ARM indexes in the industry, an advantage when interest rates are climbing, yet a drawback when they are falling.

FAQ

What Is an Adjustable-Rate Mortgage (ARM) Index Rate?

For an adjustable-rate mortgage (ARM), the index is a benchmark interest rate that reflects general market conditions. After the initial interest rate period on your ARM lapses, lenders utilize the index rate, plus some extra percentage points (known as the margin) to compute your new interest rate. They will keep utilizing the index and margin to periodically change your loan's rate from that point.

What Are Some Other ARM Index Rates?

There are several different indexes used to decide the rates of ARMs. Other than the Cost of Savings Index (COSI), many mortgages utilize the London Interbank Offered Rate (LIBOR), the Monthly Treasury Average (MTA) Index, and the Federal Reserve (Fed) prime rate.

How Are Interest Rates Calculated for ARMs?

In an ARM, the fully indexed interest rate alludes to the variable interest rate after the basic rate lapses. It is calculated by adding an index rate, like COSI, to a fixed margin rate, which is tied to the borrower's credit score. Most loan terms will likewise incorporate extra [caps](/yearly cap) to limit the potential expansions in the loan's interest rate.