Adjustment Interval

The adjustment interval is the time between changes in interest rates on a loan.

Sometimes also referred to as the refresh rate, the adjustment interval is most often observed in adjustable rate mortgages as interest rates move together with the movement of indices.

For example, a mortgage with floating interest rates pegged to LIBOR might take the current rate of the index monthly, 3-monthly, 6-monthly, etc.

The change will affect interest rates and in turn, the monthly payment as well.

Interest rates adjust once per interval of ARMs.

On a 5/1 ARM, the initial period of fixed rates last for the first 5 years. Then a yearly adjustment interval afterwards.

In general, loans with more frequent adjustment intervals are deemed riskier than those which are stretched out.

When interest rates are rising shorter interval are unfavorable to consumers and borrowers. While longer intervals are more unfavorable when interest rates are decreasing.

Under circumstances, the adjustment interval might not follow a rigid structure.

For example, when there is negative amortization on a loan, lenders might trigger a rate refresh on an adhoc basis to clear the unpaid balances.