Adjustable Rate Mortgages: What Is a "Coffee" Loan?

January 10, 2000, Reviewed February 13, 2011

"My loan officer recommended a coffee loan… What is a "coffee" loan?"

I smiled the first time this question popped up in my Email. The one cited above is now my seventh, however, and I'm no longer smiling. The question is a sad commentary on the inability of all too many loan officers to communicate effectively with loan applicants.

There is no such thing as a "coffee loan". The loan officer is referring to a "COFI ARM", meaning an adjustable rate mortgage with an interest rate tied to a cost of funds index. The acronym "COFI" sounds like "coffee", but any loan officer who allows a customer to walk away believing that they are the same ought to be fired on the spot.

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