When purchasing a home, there are numerous closing costs to consider, one of which might be the interest adjustment. This fee can be confusing, especially if it’s your first time dealing with it. Let’s demystify this concept and explain how it affects your overall home buying budget.
Imagine you’ve just purchased a home for $300,000 with a closing date of June 15th. This is when your mortgage lender will provide the funds for your purchase, allowing your real estate lawyer to complete the transaction with the seller.
However, your first mortgage payment is not scheduled until July 1st—16 days after your mortgage begins. Interest on your mortgage starts accruing from June 15th, not from the day of your first payment. Thus, you owe interest for those initial 16 days before your regular mortgage payments kick in.
Let’s calculate the interest adjustment using a revised purchase price and interest rate:
This $460.32 is what you would need to pay as an interest adjustment, which, while small relative to the overall cost of the home, is an important consideration in your budget.
The interest adjustment date (IAD) is typically the day before your first mortgage payment is scheduled. It’s a crucial date set by your lender, marking when the interest adjustment payment is due.
There are a few ways to manage this payment:
If possible, try scheduling your closing date close to the date of your first mortgage payment. This alignment can help minimize or even eliminate the need for an interest adjustment, making your home buying process a bit smoother and potentially less expensive.
Understanding these details ensures you are better prepared financially for the home buying process and can plan your budget more accurately.