Adjustment Frequency Law and Legal Definition
Adjustment frequency is the frequency at which interest rate changes or resets on an adjustable-rate mortgage occur. Different adjustable-rate mortgages have different adjustment frequencies. Generally, the adjustment frequency is once a year. However, it can be as often as once a month or as infrequent as once every five years. The lower the rate-adjustment frequency, the lower the financial risk for the borrower. The lender will usually expect the borrower to pay a higher initial interest rate before the first reset date to compensate for lower interest rates in the future and thus lower margins. The higher the adjustment frequency, the higher the financial risk for the homeowner. For instance, if the adjustment frequency is once a month, a homeowner could find his/her mortgage payment increasing every month for five months before it goes down again.