What is a Mortgage Interest Adjustment?
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A mortgage interest adjustment is the amount of interest accumulated between your new home’s closing date and the day your first mortgage payment is withdrawn by your lender from your banking account.
- Mortgage interest begins to accumulate on your home’s closing date
- Expect to pay a mortgage interest adjustment to make up for the time between your home’s closing date and the first scheduled mortgage payment
- Interest adjustment isn’t typically a large expense, but it’s an important closing cost to keep in mind when budgeting
Are you a first-time buyer?
A mortgage interest adjustment is one of many closing costs that some homebuyers have to pay. This occurs when your closing date falls before your first scheduled mortgage payment.
While it’s not typically a large amount of money, it’s always important to plan for an interest adjustment when budgeting for closing costs. See: Closing Costs: What are They and How Much Will You Pay?
If, for instance, you have a $400,000 mortgage and your closing date is set for October 15th, this is the day your lender needs to advance your mortgage funds so that your real estate attorney can pay the seller. Your first mortgage payment isn’t being withdrawn until November 1st – 16 days after your mortgage is advanced. Even though you’re not scheduled to make your first payment until November 1st, interest starts to accrue on October 15th.
Using the figures above, this is how your interest adjustment would look:
$400,000 mortgage x $2.39% mortgage rate = $9,560
$9,560 ÷ 365 days/year = $26.19
$26.19 x 16 days = $419.04 interest adjustment
What is an interest adjustment date?
An interest adjustment date is simply the date your interest adjustment payment is due. This is set by your lender and is almost always scheduled for the day before your first mortgage payment is set to be withdrawn by your lender from your bank account.
Tip: To avoid paying an interest adjustment, ask your lender if it’s possible to schedule your first mortgage payment closer to you closing date.
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How do I pay my interest adjustment?
There are often several ways that you can pay your interest adjustment, if applicable, including:
- Pay on closing day – either pay your lender with cash or have it deducted from your mortgage loan before the funds are advanced to you
- Get your lender to withdraw it from your bank account on the interest adjustment date
- Add the cost to your first scheduled mortgage payment
As always, your nesto mortgage advisor will help you decide which option works best for your unique needs.
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Other articles in this guide: “Closing Costs: What are They And How Much Will You Pay?”
- What Does a Real Estate Attorney Do?
- Statement of Adjustments & Trust Ledger Statement
- What is the GST/QST/HST New Housing Rebate?
- Provincial Sales Tax (PST) on Mortgage Default Insurance
- Closing Costs Buyer’s Fees
- Property Taxes
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