LIBOR<\/u><\/a>. Since the cost of money index is the foundation or basis of the interest rates set by these various institutions, a margin is added to the index to determine the final lending interest rate.\u00a0<\/p>For example, if the COFI is 2.875% and the margin is 2.6% then the interest rate that the bank pays on a savings account or a charge on a loan is 5.475%.<\/p>
When an account is opened where the interest rate is earned or paid, the way an interest rate is calculated is an important factor.\u00a0<\/p>
The index is one of the most significant parameters to establish adjustable-rate mortgages. Most account holders can determine their rates by using the COFI and adding the margin that the lender tax is on.<\/p>
The COFI is based on the Federal Funds Rate. The federal funds rate is the rate at that banks lend their excess reserves to other banks overnight. By law, commercial banks are supposed to keep a reserve amount equal to a certain percentage of their deposits at the Federal Reserve.\u00a0<\/p>
The Federal Open Market Committee meets eight times a year to decide whether or not the federal funds rate should go up, down, or remain the same. They take in economic factors like inflation, possible recessions, and durable goods orders.<\/p>
The lender will have a set margin on the federal funds rate when any borrower is applying for any loans like a mortgage, car loan, or any other loan. This margin is the profit that a lender makes from the loan over the tenure of the loan.<\/p>\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t