Interest Adjustment

Interest adjustment is a fee sometimes paid when a borrower makes additional repayments beyond the monthly minimum on a loan. This is to compensate for the loss incurred by the lender as a result of early repayment. Because additional payments lower the interest on the principal, the lender earns less interest for the duration of the loan. Interest adjustment usually applies to fixed rate loans, where the profit from the loan is predetermined by the fixed interest rate. In adjustable rate loans, borrowers sometimes earn back interest adjustment as a result of lowered market rates.