An interest adjustment is a closing cost that only some home buyers have to pay, which makes it a little confusing for those who find themselves in a situation where they need to do so. Fortunately, it’s a relatively simply concept to explain, so let us take the confusion out of it for you.
What is an interest adjustment?
Let’s say you just bought a home for $250,000 and your closing date is on June 15th; this is the day your lender needs to advance your mortgage loan on, so your real estate lawyer can pay the seller whom you bought the home from.
However, your first mortgage payment isn’t coming out until July 1st – 15 days after your mortgage is advanced. Even though you’re not scheduled to make your first payment until July 1st, interest starts to accrue on June 15th.
The interest adjustment is simply the amount of interest accrued between your closing day and the day your first mortgage payment comes out. Using the example above, your interest adjustment would be:
$250,000 (purchase price)
x 2.89% (mortgage rate)
÷ 365 (days per year)
x 15 (days)
= Interest adjustment: $297
As you can see, it’s a relatively small amount, but it’s still a closing cost you may need to include in your home buying budget. If you want to try and avoid having to pay an interest adjustment, try to schedule your closing date on or close to the day your first mortgage payment comes out.
What is an interest adjustment date?
The interest adjustment date (IAD) is simply the date your interest adjustment payment is due; it’s set by your lender, and is almost always the day before your first mortgage payment is scheduled to come out.
How do I pay my interest adjustment?
The easiest way would be to do so on closing day, where you could either pay your lender with cash or have them deduct it from your mortgage loan before they advance it to you. You can also get them to withdraw it from your bank account on the interest adjustment date. Or, in some cases, you may be able to add it to your first scheduled mortgage payment.