TL;DR: the interest adjustment amount is the interest charged to you between your closing date and when your first payment would have occurred. This payment is taken on the date your first payment is scheduled to come out. The first full payment is taken on the next payment date after the interest adjustment date. It is a partial/smaller payment, to get the payment schedule on track with the payment dates you have selected in relation to the closing date.

2 minute read

An interest adjustment refers to the amount of interest that is accumulated between your closing day and the day you make your first mortgage payment. 

Suppose your mortgage closing date is July 17th, and you have selected monthly payments, due on the 1st day of each month. The period of time between July 17th and August 1st is the period of time that an interest adjustment is required for.

The amount of the interest adjustment payment can be calculated by determining the number of days between the closing date and the interest adjustment date, and multiplying the number of days by the daily interest amount of the mortgage. The daily interest amount is the mortgage amount, multiplied by the mortgage rate, divided by 365.

Suppose the mortgage amount is $300,000 and the rate is 2.7%, and that it closed on July 17th and payments are monthly payments on the 1st.

There are 15 days from and including July 17th to August 1st (excluding August 1st). The daily interest amount is $300,000 x 2.7% ÷ 365 = $22.19. The interest adjustment amount is $22.19 x 15 days, or $332.87, and this amount will be paid on the interest adjustment date of August 1st. The first full mortgage payment will then be taken on September 1st.

The calculation is much the same if your selected payment frequency is something other than monthly. 

The amount is withdrawn automatically from your account on the same day of the month/week as your regular payment would be. After the interest adjustment payment, if any, your regular payments will begin.

To avoid an interest adjustment payment, set your first payment date exactly one payment period after your closing date. For example, if you selected monthly payments, select the same date for your payments as your closing date, i.e. the 17th of the month, in our example in this article. If you selected biweekly payment, set your payment date to exactly two weeks after your closing date. This will make your first payment a full mortgage payment.

Did this answer your question?