Legal Definitions - adjustment date

The adjustment date is a specific calendar date identified in a contract or agreement when certain financial terms or calculations are scheduled to change or be finalized. It marks a pivotal point for determining financial obligations or altering contractual rates.

This term is commonly used in two primary contexts:

• In financial contracts, particularly mortgages: It is the date when the interest rate of a loan, such as an adjustable-rate mortgage (ARM), is reset according to predefined terms. The rate might be fixed for an initial period and then periodically adjusted to reflect current market conditions on these scheduled adjustment dates.
• In real estate transactions: The adjustment date serves as the agreed-upon reference point for calculating and dividing various shared expenses between the buyer and seller, such as property taxes, utility bills, and mortgage interest. On this date, these costs are "prorated," meaning they are divided fairly based on who is responsible for which portion of the year or billing cycle. It is also often the date when mortgage funds are officially released and begin accruing interest, and frequently aligns with the buyer's possession date, meaning when they officially take over the property and become responsible for its ongoing costs.

Here are some examples illustrating the application of an adjustment date:

• Example 1: Adjustable-Rate Mortgage (ARM) Interest Reset

  Sarah took out an adjustable-rate mortgage (ARM) five years ago. Her loan agreement specified an initial fixed interest rate for the first five years, after which the rate would adjust annually based on a market index.

  The date exactly five years after Sarah closed on her mortgage is her first adjustment date. On this specific day, her interest rate will change from the initial fixed rate to a new rate calculated according to the terms outlined in her loan documents, reflecting current market conditions. Subsequent adjustment dates will occur annually on the same calendar day.

  This example demonstrates how the adjustment date marks the scheduled point when a key financial term—the interest rate—of a loan contract is reset, directly impacting Sarah's monthly mortgage payments.

• Example 2: Real Estate Transaction Cost Proration and Possession

  Mark and Lisa are purchasing a new home. Their purchase agreement specifies that while the closing (the legal transfer of ownership) will happen on October 20th, they will officially take possession of the property and become responsible for its ongoing costs on October 21st.

  October 21st is the adjustment date. On this day, various shared expenses like annual property taxes, monthly utility bills (water, electricity), and any homeowner association fees will be calculated and divided between Mark and Lisa (the buyers) and the sellers. For instance, the sellers would be responsible for property taxes up to October 20th, and Mark and Lisa would be responsible from October 21st onwards, with the prorated amount settled as part of the final financial statement. If they have a mortgage, interest on their loan will also begin accruing from October 21st.

  This illustrates the adjustment date as the critical reference point in a real estate transaction for determining when the buyer assumes financial responsibility for the property and when shared costs are fairly divided between the parties.