Interest Adjustment Date
Definition and meaning of Interest Adjustment Date in real estate.
The interest adjustment date is the date from which a lender begins calculating regular monthly interest payments on a new mortgage loan.
In more detail
When a real estate transaction closes, the closing date rarely falls on the exact day that the first full mortgage period begins. The interest adjustment date is set to align the loan payments with standard monthly billing cycles, typically the first day of the month following closing.
Borrowers must pay interim interest for the days between the closing date and this adjustment date. This interim interest, often called prepaid interest, is collected as a closing cost at settlement.
Key facts
| Category | Legal, Titles & Closing |
|---|---|
| Also known as | Interest adjustment point |
| Typical timing | The first day of the month following the closing date |
| Who pays | The borrower at closing |
A buyer closes on their new home on October 15, and the lender sets the interest adjustment date for November 1, meaning the buyer pays prepaid interest for the 16 days in October at closing, and their first regular mortgage payment is due on December 1.
Frequently asked questions
Why do I have to pay prepaid interest at closing?
Prepaid interest covers the cost of borrowing the money from the day your loan closes until the official interest adjustment date, when your normal billing cycle begins.
Can I avoid paying prepaid interest by closing at the end of the month?
Yes, closing close to the end of the month minimizes the number of days between closing and the interest adjustment date, reducing the amount of prepaid interest due at closing.