Adjustment date is the date on which a financial term of a contract or transaction is set to change. In real estate, it usually refers to the date on which the interest rate of an adjustable rate mortgage (ARM) changes. An ARM’s interest rate is usually fixed at a discount rate for an initial period before it is reset (or adjusted), according to the parties’ agreement, on a scheduled adjustment date, to reflect current market interest rates. The time between each adjustment or adjustment date is referred to as the adjustment period.
Adjustment date also refers 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.
Mortgage funds are generally dispersed on the adjustment date. Once disbursed, they begin to accumulate interest. As a result, real estate buyers seeking to avoid being charged mortgage interest prior to possession of purchased property will schedule their closing (or completion date) the day before an adjustment date, or as close as, to the adjustment date as possible.
The possession date and adjustment date of a real estate transaction are usually the same day. The day the buyer takes possession of the property is the day they are expected to begin being charged for property taxes, water, and other utilities. In most cases, the possession and adjustment dates occur the day following closing.
[Last updated in June of 2021 by the Wex Definitions Team]