When you decide to close the offer on your home, you may have to make additional payments towards your closing costs. These payments are called interest adjustments.
What’s an interest adjustment? What’s an interest adjustment date?
Interest adjustments are a one-time closing cost payment. Simply put, it’s the amount of interest collected on your mortgage. Your interest adjustment starts from the day that you’ve closed the offer on your home to the day when you make your first official monthly payment.
The interest adjustment date is when your interest adjustment payment is due. You can pay this amount to your financial institution with cash. Most people pay their interest adjustments on the day they make all of their closing costs.
Why did my lender charge an interest adjustment on my mortgage? I’ll be making my first payment in a month.
When your bank or credit union charges you an interest adjustment, this is their way of making sure that they receive your mortgage payments on time.
So while you won’t be making any official mortgage payments until the following month, your lender technically has still loaned you the full mortgage amount from the moment you closed your offer.
By requesting the adjustment, your lender collects the interest on your loan.
What does a typical interest adjustment scenario look like?
Understanding an interest adjustment is helpful if and when you have to pay one.
While it sounds like a complicated process, calculating how much you’ll owe is very simple.
Let’s say a couple closed their offer on October 15th and their mortgage is worth $350,000. They plan to make their first payment by November 1st. The interest adjustment can be calculated in three easy steps:
First, let’s calculate the amount of annual interest the couple will pay on their mortgage.
$350,000 x 2.39% = $8,365
(purchase price of home) (interest rate) (total annual interest)
Next, we’ll calculate how much interest you’ll owe daily. To do this, divide the total annual interest by the number of days in a year.
$8,365/365 = $22.90 (the daily interest payment)
Finally, we’ll multiply the daily interest. From October 15th — November 1st, 16 days will have passed.
$22.9 x 16 = $366 (interest adjustment)
In this couple’s case, $366 is their interest adjustment cost.
How do I avoid paying an interest adjustment?
The easiest way to avoid an interest adjustment payment is by having your first monthly payment ready a month in advance.
You can write a post-dated cheque or set up an automatic payment to manage your first mortgage payment.
Check out some of our Calculators for more details