Interest Adjustment
The interest adjustment amount is a one-time interest expense that is typically paid on the Closing Date of your Mortgage. It occurs whenever you receive mortgage funds (ie. close your mortgage) before the Interest Adjustment Date (IAD).
Most borrowers set their mortgage payments to be monthly on the first of the month. If you buy a home on another day of the month, your lender calculates interest from your Closing Date to the IAD. The interest amount that covers this short period is called the Interest Adjustment amount.
Let’s take a look at an example:
You buy a home on June 20, but mortgage payments are set to occur on the first of each month (ie. the IAD is July 1).
You pay the Interest Adjustment amount on the Closing Date for the period from June 20 to July 1.
Your first regular mortgage payment will then be one month after the IAD; in this case, August 1.
You may also pay an Interest Adjustment amount if you change your mortgage payment date or mortgage payment frequency during the mortgage term.
Interest Adjustment Date (IAD)
The date on which the Mortgage Term will commence. It is most commonly the first day of the month after Closing.
Interest-Only (IO) Mortgage
An interest-only mortgage is a mortgage where the borrower is required to pay only the interest on the loan. There is no principal amortization required. This can result in lower monthly payments despite the fact the interest rates are higher than for traditional mortgages. These mortgages increase the risk and the cost of borrowing over time. Therefore, these types of mortgages are not beneficial for most Canadian mortgage borrowers. IO mortgages are not common in Canada and can typically only be found by a few alternative lenders or private lenders.