Adjustment Frequency

You own an adjustable rate mortgage. It stipulates that you'll pay LIBOR plus one percent, or one hundred basis points. Your first six months are guaranteed to be at 4% max interest rate. After that, the rate adjusts every six months, such that no adjustment can be more than 25 basis points.

Inflation grabs hold of the planet and LIBOR skyrockets, going from 3% to 7% almost overnight. Luckily for you, you have an adjustment frequency tax of 25 basis every three months, so that next quarter you'll pay 4.25%, and the following quarter 4.5%, and the following quarter 4.75%, and so on...until eventually, years down the line, you catch up to the very expensive 8% interest you'll owe with LIBOR having settled in at 7%.

Adjustment frequencies are a core element of adjustable rate mortgages so that borrowers don't feel the rocking shocks of a volatile financial world where the cost of renting money is dancing around like a cat on a hot tin roof.