Which index is the most common today for ARM loans?

The most common index for adjustable-rate mortgage (ARM) loans today is the Cost of Funds Index (COFI). This index is used in many ARMs, especially those that target borrowers in California and other Western states. COFI reflects the average cost that savings institutions in a specific area pay for funds, which makes it particularly relevant for borrowers looking for stable and predictable rates that adjust according to funding costs in local markets.

While the London Interbank Offered Rate (LIBOR) has historically been a commonly used index for ARMs, its relevance is diminishing. The transition away from LIBOR began due to issues related to its manipulation and the move toward more reliable benchmarks, especially in light of regulatory changes.

The Secured Overnight Financing Rate (SOFR) has emerged as a new alternative to LIBOR, yet it is still in the early phases of adoption in the ARM market and not as widely embraced by lenders and borrowers.

The Prime Rate is another benchmark often used for various loans but is typically associated with consumer loans and credit products rather than ARMs specifically.

Overall, while LIBOR retains some recognition, COFI currently stands as the more widely utilized index for ARMs, helping borrowers secure adjustable rates that are more reflective of the actual costs of funds