Interest Rate Adjustment Frequency

What does it mean

An Interest Rate Adjustment Frequency is how often the borrower’s rate resets based on an mutually agreed upon metric during the term of the loan.  

Why does it matter

Interest Rate Adjustment Frequency matters because as with anything that has to do with loan structuring, the specifics are only restricted by your level of creativity and ability to negotiate.  Interest Rate Adjustment Frequency can be as short as daily or as long as you and the borrower deem appropriate.  

There are certain time periods where shorter or longer periods of time are preferred.  In a decreasing rate environment, a bank will lean towards longer adjustment frequency because they want to have the current rate last as long as possible before it resets to a lower rate.  In an increasing rate environment, the bank will lean towards a shorter adjustment frequency because it wants the ability to receive the higher rate sooner.  Please note that these are shown from the bank’s perspective, but the borrower will typically have the exact opposite preference in the situations described above.   

Other Relevant Terms

• Loan Structure
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