What is an interest adjustment date, interest adjustment amount or IAD?

When a mortgage is registered, the first payment date is normally several days beyond the typical payment period. The days between when the funds are advanced and when the normal payment period commences is called the interest adjustment period and the interest adjustment date is the day the lender takes out the interest adjustment amount. Confused? Let us explain in more detail. Lenders must earn interest before they can charge it to a borrower. Lenders and borrowers prefer to have a fixed amount for a payment due on a specific day. The IAD is the date when the first payment period is started. The interest adjustment amount is the amount of daily interest earned by the lender up to the payment period commencement, and is normally charged on that day. For example, for a loan funded on the 25th of the month where a borrower chooses a monthly payment payable on the 1st of the month, the lender will have only earned interest from the 25th to the end of the month by the time the first payment period commences. The lender then takes the daily interest for those days on the 1st with the first full mortgage payment due on the 1st day of the subsequent month. The interest adjustment amount is thus an interest only payment for a much smaller amount than the normal, agreed upon payment.

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