What is the Cost of Funds?

The cost of funds has to do with the amount of interest that any financial institution is obligated to pay in exchange for the privilege of using money. Calculating the interest cost that is part of the overall cost of funds is usually conducted on a monthly basis, and is subject to laws set in place by various government entities. As with many types of expenses associated with doing business, the cost of funds can take more than one form. One of the more common examples of a cost of funds has to do with the extension of mortgages by lending institutions. The use of money in order to extend these types of loans to consumers is made available with a degree of interest cost involved. Often, a portion or all of that interest cost is passed on to the loan recipient. When applied to the business of extending mortgage loans, the cost of funds is usually calculated using a criterion that is established by the Federal Home Loan Bank system. Depending on the circumstances, the calculation may ...  more

The cost of funds has to do with the amount of interest that any financial institution is obligated to pay in exchange for the privilege of using money. Calculating the interest cost that is part of the overall cost of funds is usually conducted on a monthly basis, and is subject to laws set in place by various government entities. As with many types of expenses associated with doing business, the cost of funds can take more than one form. One of the more common examples of a cost of funds has to do with the extension of mortgages by lending institutions. The use of money in order to extend these types of loans to consumers is made available with a degree of interest cost involved. Often, a portion or all of that interest cost is passed on to the loan recipient. When applied to the business of extending mortgage loans, the cost of funds is usually calculated using a criterion that is established by the Federal Home Loan Bank system. Depending on the circumstances, the calculation may ...  more