When you take out a mortgage, the Interest Adjustment Date (IAD) marks the official start of your loan’s interest calculation period. This date usually falls on the first day of the month following your closing date. Because your closing day can be any day of the month, interest accrues between closing and the IAD. To account for this, lenders require a one-time interest adjustment payment—sometimes called “prepaid interest” in the U.S.—to cover the accrued interest from closing until the IAD.
Understanding the IAD helps you anticipate this upfront cost in your closing expenses. It ensures that your mortgage payment schedule starts cleanly on the first of the month, simplifying payment tracking for both you and your lender.
For example, if your mortgage closing occurs on June 15, and your IAD is July 1, you’ll owe prepaid interest for 16 days (June 15–30). Calculating this involves multiplying your daily interest amount by the number of days between closing and the IAD.
This system exists largely for administrative convenience. If each mortgage started interest calculations on different days, lenders would struggle to manage payments efficiently. By standardizing the start date, lenders keep accounting straightforward and payment dates consistent.
While you can technically avoid an interest adjustment payment by scheduling your closing on the IAD itself, this can be difficult to arrange.
Related terms you may find helpful include Mortgage Payment Breakdown and Mortgage Closing Costs, which explain other important parts of your home loan payments and fees.
For detailed guidance, consult the Consumer Financial Protection Bureau’s mortgage glossary, which offers authoritative information on prepaid interest and related mortgage terms.
