Interest Adjustment
The interest adjustment amount is a one-time interest expense that is typically paid on the Closing Date of your Mortgage. It occurs whenever you receive mortgage funds (ie. close your mortgage) before the Interest Adjustment Date (IAD).
Most borrowers set their mortgage payments to be monthly on the first of the month. If you buy a home on another day of the month, your lender calculates interest from your Closing Date to the IAD. The interest amount that covers this short period is called the Interest Adjustment amount.
Let’s take a look at an example:
- You buy a home on June 20, but mortgage payments are set to occur on the first of each month (ie. the IAD is July 1).
- You pay the Interest Adjustment amount on the Closing Date for the period from June 20 to July 1.
- Your first regular mortgage payment will then be one month after the IAD; in this case, August 1.
You may also pay an Interest Adjustment amount if you change your mortgage payment date or mortgage payment frequency during the mortgage term.
About The Author
Don Scott
Don Scott is the founder of a challenger mortgage brokerage that is focused on improving access to mortgages. We can eliminate traditional biases and market restrictions through the use of technology to deliver a mortgage experience focused on the customer. Frankly, getting a mortgage doesn't have to be stressful.
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