Adjustment Date

Adjustment Date

An adjustment date is the date on which a financial change under a contract or transaction is scheduled to occur. Adjustment dates also refer to the dates in which interest rate changes are scheduled to occur in adjustable-rate mortgages (ARMs). Certain costs_ — _such as property taxes, the transfer of utilities, the effective date of insurance, and loan interest charges_ — _have a basis on the adjustment date. The loan has a fixed rate of two years, followed by a floating rate for the remaining 28 years of the loan. These mortgages have a fixed interest rate for an initial period, followed by scheduled rate changes.

What is an Adjustment Date?

An adjustment date is the date on which a financial change under a contract or transaction is scheduled to occur. All parties involved in a transaction will agree on the adjustment date. Many real estate deals include adjustment dates. Adjustment dates also refer to the dates in which interest rate changes are scheduled to occur in adjustable-rate mortgages (ARMs).

Breaking Down Adjustment Date

An adjustment date refers to the agreed-upon time for the completion of calculations of specific charges due from the buyer and seller during the sale of a home. Certain costs_ — such as property taxes, the transfer of utilities, the effective date of insurance, and loan interest charges — _have a basis on the adjustment date. During a real estate closing, this date will be the basis to determine the portion of the shared cost which is due from a seller and buyer of a property

Adjustment dates are also the first day that interest will begin to accrue on a home mortgage. This day is the date of the disbursement of money to the involved parties. The adjustment date as the day of payment is vital, because the buyer has the use of these funds, sometimes for several days before final closing. Adjustment dates form the basis of the interest calculations on a mortgage which the lender may request at closing. To limit the amount due at the sale's settlement, a buyer should try to schedule their closing as close to the adjustment date as possible. 

Adjustment date in ARMs

An ARM is a type of mortgage in which the interest rate varies throughout the life of the loan. These mortgages have a fixed interest rate for an initial period, followed by scheduled rate changes. On a specified adjustment date, the rate will reset for a stated number of months or years.

ARM descriptions typically have two numbers. The first number indicates the length of time for the fixed rate, but the meaning of the second number varies. Take for example the 2/28 ARM. The loan has a fixed rate of two years, followed by a floating rate for the remaining 28 years of the loan. The 5/1 ARM has a fixed-rate for five years, followed by a variable rate that adjusts every year. 

Interest rates can increase or decrease with an adjustable-rate mortgage. Some ARMs set limits on how high or low an interest rate can change. These limits are known as rate caps.

Related terms:

Adjustable-Rate Mortgage (ARM)

An adjustable-rate mortgage is a type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. read more

Closing

Closing is the final phase of mortgage loan processing where the property title passes from the seller to the buyer. read more

Disbursement

Disbursement is the act of paying out or disbursing money, which can include money paid out for a loan, to run a business, or as dividend payments.  read more

Effective Date

In contract law, the effective date is the date that an agreement or transaction between or among signatories becomes binding. read more

Fixed-Rate Mortgage

A fixed-rate mortgage is an installment loan that has a fixed interest rate for the entire term of the loan. read more

Fixed Interest Rate

A fixed interest rate remains the same for a loan's entire term, making long-term budgeting easier. Some loans combine fixed and variable rates. read more

Foreclosure

Foreclosure is the legal process by which a lender seizes and sells a home or property after a borrower is unable to fulfill their repayment obligation. read more

Fully Indexed Interest Rate

A fully indexed interest rate is defined as an adjustable interest rate which is pegged at a set margin above some reference rate, such as LIBOR. read more

Interest Rate , Formula, & Calculation

The interest rate is the amount lenders charge borrowers and is a percentage of the principal. It is also the amount earned from deposit accounts. read more

Lifetime Cap

The lifetime cap is the maximum interest rate that is allowed to be charged on an adjustable-rate mortgage. read more