Legal Definitions - adjustment period

An adjustment period refers to the specific length of time between scheduled changes to the interest rate on an adjustable-rate mortgage (ARM).

When you have an adjustable-rate mortgage, your interest rate isn't fixed for the entire loan term. Instead, it starts at an initial rate for a set number of years, and after that initial period, the rate can go up or down at regular intervals. The "adjustment period" is simply how often these rate changes occur. For instance, if a mortgage has an annual adjustment period, its interest rate will be reviewed and potentially reset once every year.

Here are some examples to illustrate how an adjustment period works:

• Example 1: Annual Adjustment

  Imagine a homeowner takes out a 7/1 ARM. This means their interest rate is fixed for the first seven years. After those seven years, the "1" in 7/1 indicates an annual adjustment period. This means the interest rate on their mortgage will be reviewed and potentially reset once every 12 months for the remainder of the loan term. Each 12-month interval between rate changes is an adjustment period.

• Example 2: Semi-Annual Adjustment

  A small business owner secures a commercial mortgage with a 10/6 ARM. For the first ten years, the interest rate remains constant. Following this initial period, the "6" signifies a semi-annual adjustment period. Consequently, the interest rate on their loan will be subject to change every six months. Each six-month interval between these potential rate changes is an adjustment period.

• Example 3: Multi-Annual Adjustment

  Consider a couple who obtains a mortgage with an initial fixed rate for five years, after which the rate adjusts every three years. In this scenario, the adjustment period is three years. Once the initial five-year fixed period concludes, their interest rate will be re-evaluated and potentially reset every 36 months. Each three-year interval between these adjustments constitutes an adjustment period.