Definition:
The payment change date is the specific date when a borrower’s mortgage payment amount is scheduled to change, typically found in adjustable-rate mortgages (ARMs) or loans with step-up payment plans.
Example:
Kevin has a 5/1 adjustable-rate mortgage, which means his interest rate is fixed for the first five years. After that, his payment change date is set for the sixth year—when his interest rate (and monthly payment) can adjust based on market rates.
Explanation:
Not all mortgages have fixed payments. Adjustable-rate mortgages (ARMs), graduated payment mortgages, and some modified loans include a payment change date. This is the date when the borrower's monthly payment will increase or decrease based on a scheduled change in interest rate or loan structure.
Payment changes are usually tied to:
- The end of an initial fixed-rate period (as in 5/1 or 7/1 ARMs)
- Market index changes that affect variable rates
- Loan modifications or restructuring
- Balloon payments or step-rate loan terms
Borrowers are typically notified in advance of a payment change so they can plan for the new amount. The new payment will include a recalculated amount based on the current loan balance, interest rate, and remaining term.
Lenders are required by law to provide notice of payment changes—usually at least 60 days in advance for ARMs.
Why is Payment Change Date Important in Real Estate Transactions?
The payment change date is important because it affects a borrower’s future budgeting and affordability. Buyers need to be aware of upcoming changes that could significantly increase their mortgage payments. For sellers and real estate professionals, explaining this to buyers helps avoid surprises down the line. Understanding the payment change date ensures buyers are financially prepared throughout the life of the loan.