The interest adjustment date (IAD) is the date your mortgage’s regular payment schedule starts from. When the mortgage funds on a day other than the IAD, the lender charges interest for the days in between, and that charge is the interest adjustment. It can be a few dollars or more than a thousand, depending on the size of the mortgage and how many days fall in the gap. It’s one of the smaller closing costs, but it’s easy to miss when you budget.
How the interest adjustment date works
| Event | Date | What happens |
|---|---|---|
| Closing day | March 15 | The mortgage funds and you take possession |
| Interest adjustment date | April 1 | The regular payment schedule starts from here |
| Gap | March 15 to March 31 | 17 days of interest, charged as the interest adjustment |
| First regular payment (monthly) | May 1 | Covers the month from April 1 |
Each regular payment covers interest for one full payment period. A closing partway through a period leaves some days that no regular payment covers, so the lender charges interest for those days separately and starts the schedule from the IAD. Many lenders set the IAD on the first of the month after closing for a monthly mortgage; for other payment frequencies it’s often set one payment period before the first payment.
How the interest adjustment is calculated
The adjustment is simple interest on the mortgage for each day of the gap:
Interest adjustment = mortgage amount ร annual interest rate รท 365 ร days in the gap
Lenders work out the daily rate slightly differently, so the figure on your mortgage documents can differ a little from this.
By closing date
On an illustrative $500,000 mortgage at 5% (for current rates, see mortgage rates), with an IAD of April 1:
| Closing date | Days in the gap | Interest adjustment |
|---|---|---|
| March 1 | 31 | $2,123 |
| March 10 | 22 | $1,507 |
| March 15 | 17 | $1,164 |
| March 20 | 12 | $822 |
| March 25 | 7 | $479 |
| March 31 | 1 | $68 |
By mortgage size
At the same illustrative rate, for a gap of 17 days and of 7 days:
| Mortgage | 17-day gap | 7-day gap |
|---|---|---|
| $300,000 | $699 | $288 |
| $500,000 | $1,164 | $479 |
| $750,000 | $1,747 | $719 |
Where it shows up on closing day
Depending on the lender, the interest adjustment is either deducted from the mortgage advance your lawyer receives on closing day, which means you bring that much more cash to closing, or added to your first payment. When it’s deducted from the advance, your lawyer shows it on the closing statement with the other adjustments; how that statement is put together is explained in the statement of adjustments explained.
How the closing date changes the cost
The later in the payment period you close, the fewer days are in the gap:
| Closing date | Days in the gap | Interest adjustment | Difference from a March 15 closing |
|---|---|---|---|
| March 15 | 17 | $1,164 | |
| March 25 | 7 | $479 | $685 less |
| March 31 | 1 | $68 | $1,096 less |
There are trade-offs. The last business days of each month are the busiest for lawyers, lenders and land registries, which raises the chance of a delay, and a seller may want a different date for their own reasons. Some lenders will set the IAD on the closing date itself, so there’s no gap to charge for; the first payment then falls one period after closing.
The interest adjustment doesn’t reduce what you owe either way: it pays interest only. Closing later in the month mainly means you start paying interest later.
Payment frequency and the IAD
The interest adjustment covers the same gap whatever the payment frequency; what changes is when the first regular payment falls after the IAD.
| Payment frequency | IAD | First regular payment |
|---|---|---|
| Monthly | April 1 | May 1 |
| Semi-monthly | April 1 | April 15 |
| Bi-weekly or accelerated bi-weekly | April 1 | About two weeks later |
| Weekly | April 1 | April 8 |
Common questions
Is the interest adjustment tax-deductible?
Not on a home you live in: mortgage interest on a principal residence isn’t deductible in Canada, and the interest adjustment is mortgage interest. On a rental property, interest on money borrowed to earn rental income is generally a deductible expense, and that includes the interest adjustment; the rental income tax calculator covers the deduction rules.
Does the IAD affect the mortgage term and amortization?
Usually the term and the amortization schedule are counted from the IAD, not the closing date. A five-year term with an April 1 IAD ends five years after that April 1, whether you closed on March 1 or March 31. The gap interest is a separate one-time charge and isn’t part of the amortization.
What happens at renewal or refinancing?
Renewing with the same lender normally has no interest adjustment, because the new term starts the day the old one ends. A refinance, or a switch to a new lender, funds a new mortgage on a new date, so it can have an interest adjustment of its own.
Budgeting for it
The interest adjustment is small next to the land transfer tax or the legal fees, but it’s paid in the same week, so it belongs in the cash you set aside. To see every closing cost for your purchase together, use the closing cost calculator, and for each item explained, see what closing costs include. The other steps between an accepted offer and closing day are in the offer-to-closing process.