Adjustment Date

What Is an Adjustment Date?

An adjustment date is the date when 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 when interest rate changes are scheduled to occur in adjustable-rate mortgages (ARMs).

Breaking Down the Adjustment Date

An adjustment date refers to the agreed-upon time for the completion of calculations of specific charges due from the buyer and the 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 that is due from a seller and a buyer of a property.

Adjustment dates are also the first day when 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 that 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. 

Key Takeaways

  • The term "adjustment date" can refer to several different calculations or dates in a financial transaction.
  • An adjustment date can mean the agreed-upon time for the completion of calculations of specific charges due from buyer and seller during the sale of a home. 
  • An adjustment date can also refer to the first day when interest will begin accruing on a mortgage.
  • The adjustment date as the day of payment is a critical factor, because the buyer has the use of these funds—sometimes for several days before closing.
  • Adjustment dates form the basis of the interest calculations on a mortgage that the lender may request at closing.

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. For example, take 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, meanwhile, has a fixed rate for five years, followed by a variable rate that adjusts every year. 

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

The Bottom Line

In real estate, the adjustment date generally means the date when the interest rate of an adjustable rate mortgage (ARM) changes. The interest rate of an ARM is usually set at a discount rate for an initial period before it is reset—that is, adjusted—as laid out in the agreement, according to a schedule, to reflect current market interest rates. The time between each adjustment or adjustment date is referred to as the adjustment period.  

Adjustment date can also be used to refer to the agreed-upon time for the completion of calculations of specific charges due from a buyer and seller in a real estate transaction. The adjustment date serves as the basis by which the buyer and seller’s shared costs, such as property taxes, utilities, and mortgage loan interest charges, are prorated. The prorated costs are included as debits and credits on a statement of adjustments prepared by a lawyer or notary.