Definition§
Maturity is a term used to indicate the due date of a loan, bond, lease, or insurance policy. It marks the point in time when the principal amount or entire sum is scheduled to be repaid, or the contract expires. Maturity dates are critical in financial planning as they determine the timeline for repayment and interest accruals.
Examples§
- Loan Maturity: A 30-year mortgage loan has a maturity of 30 years. Monthly payments are calculated so the principal amount is amortized by the maturity date.
- Bond Maturity: A bond with a 20-year maturity generally makes periodic interest payments throughout its term, with the full principal repaid at maturity.
- Lease Maturity: A commercial lease may have a 10-year maturity, after which the contract expires unless renewed.
- Insurance Policy Maturity: A term life insurance policy might have a maturity date of 20 years, marking the expiration of the coverage period.
Frequently Asked Questions (FAQs)§
What happens when a loan reaches maturity?§
When a loan reaches its maturity, the borrower is required to pay the remaining balance of the principal. For interest-only loans, the entire principal must be repaid at maturity.
Can you extend the maturity date of a loan?§
Yes, extending the maturity date of a loan is often possible through refinancing or modifying the loan terms, subject to lender approval.
What is bond maturity, and why is it important?§
Bond maturity is the date when the bond issuer must repay the bondholder the principal amount. It is important because it affects the bond’s yield, interest payments, and investment duration.
How does lease maturity impact tenants and landlords?§
Lease maturity marks the expiration of the lease contract. Tenants may need to negotiate a renewal or seek other accommodations, while landlords may look for new tenants.
Are there penalties for not adhering to maturity dates?§
Yes, failure to adhere to maturity dates can result in penalties, additional interest, or loss of collateral, depending on the terms of the agreement.
Related Terms§
- Amortization: The process of gradually paying off a debt over a period, involving regular payments that cover principal and interest.
- Principal: The original sum of money borrowed in a loan or invested in a bond, not including interest.
- Interest: The cost of borrowing money, typically expressed as a percentage of the principal.
- Refinancing: The process of replacing an existing loan with a new one, usually with better terms.
- Yield: The income return on an investment, typically expressed as an annual percentage.
Online Resources§
- Investopedia: Maturity Date
- Federal Reserve: Understanding Bond Maturities
- Consumer Financial Protection Bureau: Loans and Home Mortgages
References§
- Brigham, Eugene F., and Michael C. Ehrhardt. “Financial Management: Theory & Practice.”
- Ross, Stephen A., Randolph W. Westerfield, and Bradford D. Jordan. “Fundamentals of Corporate Finance.”
Suggested Books§
- “The Bond Book” by Annette Thau
- “The Mortgage Encyclopedia” by Jack Guttentag
- “Principles of Financial Engineering” by Salih N. Neftci
