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.