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Interest Adjustment Date

Definition: The Interest Adjustment Date (IAD) is the date on which interest starts accruing on a mortgage, marking the beginning of regular interest-bearing payments.

Key Points:

  • Pre-IAD interest: When a mortgage is funded before the IAD, any interest that accrues between the funding date and the IAD is often due in a single payment on the IAD.
  • Start of regular payments: After the IAD, regular mortgage payments commence, typically on a monthly basis, with both interest and principal components.
  • Customized scheduling: Borrowers and lenders set the IAD to align with preferred payment dates, such as the 1st or 15th of a month, helping borrowers manage cash flow predictably.

Example:

If a mortgage closes on June 20 but the IAD is set for July 1, the borrower would typically owe an interest-only payment covering June 20 to July 1. Afterward, full payments (covering both principal and interest) would start on July 1.

Understanding the IAD and associated costs is essential for accurate budgeting during the initial mortgage period.

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Last modified: November 5, 2024

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