It is crucial to know what a loan maturity date is and how they work before on goes out to get a loan. Like all things come to an end, good news for you is that loans do too! If you hear someone saying that a loan or a mortgage has matured, it simply means that the time to pay the dues has ended.
Getting a headstart on the various aspects of it like the maturity date formula and maturity date example can help one get a better idea of the maturity date definition and how do maturity dates work.
Let’s find out what is a loan maturity date.
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What Does It Mean By Maturity Date?
The loan maturity date is a specified dataset by the lender at the time of issuing the loan. It can range from a few years to several years as well. It indicates to the lifespan of a specific loan. When the loan maturity date is up, it means the period for the borrower to pay back the loan is finished and the repayment can be terminated form there on forwards.
On the loan maturity date, all the principal and interest given have to be completely paid to the lender. In the case of secured loans, once the loan maturity date is over, the lender will have no authority on the assets of the borrower and they shall be returned to the borrower’s custody. This is the date upon which the debt agreement will cease to exist for both parties.
The maturity date definition will alter for the borrower and the lender. On maturity date the borrower won’t have to pay any more interests and the installments of the loan should be completed. For a lender, this is the date at which the legal agreement will come to halt and there will be no further inflow of cash for that one borrower.
Working Of Maturity Dates
These maturity dates are not just limited to loans but other financial investments as well. Maturity dates are for bonds and CD (certificate of deposit) as well. Both of these are a type of investment and maturity dates play a major role in denoting the completion of them.
As the maturity date nears, it is now time for the dues to come to a halt and the investment to be given to the investor. It is the time when the investors can attain the interest and the capital without having to pay any penalty on it.
Maturity Date Mortgage; What Is It?
Similar to maturity dates for other types of loans, mortgages have a maturity date as well. For mortgages, the maturity date refers to the period in which the payment for the mortgage has to be completed.
In the case of mortgages, the maturity date is also the date on which renewals can take place. The people or person borrowing can either choose to refinance with the lender that is currently in a contract with or they have the option to complete their dues entirely.
For mortgages, a borrower doesn’t need to pay off the entire amount till the maturity date. It depends on two variables. The loan and the type of amortization of the mortgage. The thing that’s slightly different in mortgage maturity dates is that the period to may payments depends on the amortization period.
There are various types of amortizations of mortgages. One widely used type is a fully amortized loan in which the maturity date and is the same as the term of the loan. In some cases, the amortization is set for a longer period than the loan terms so the maturity date might come in the next 5 years but the amortization date could be set for the next 20 years.
One maturity date example is that for mortgages, if a maturity date nears and the dues aren’t paid till then, then the bank or lender has the authority to claim the collateral.
Maturity Date Examples
The easiest example of maturity dates can be that of a bond. For instance, if Sam buys a bond, at the time of purchase he will be notified of the maturity date of that particular bond. Let’s say the maturity date specified to him is 1st November 2020.
Now, until the first of November, Sam has full authority to make payments to the investor for the bond or trade on it. But, if Sam holds the bond till the maturity date then he will have to make sure that he returns the principal amount of the bond and that he pays all the remaining payments based on interests to the lender.
How To Calculate Maturity Date
More than often the one question that people usually come up with when it comes to maturity dates is how to calculate it. If math isn’t your field of interest, then you can look up the maturity date calculator and find out the maturity date for your loan or investment in a couple of seconds. Before you proceed either with the calculator or the formula, you should know a couple of values.
Figure out how to calculate maturity date by using the maturity date formula given below:
The maturity date formula is V = P x (1 + r)^n.
Here, V, P, r, and n are the major components that you will need values to get the answer.
V denotes the maturity value, P is the value of the original principal amount, r is the periodic interest rate that you will have to pay, and n denotes the number of regular intervals from the time when the agreement initiates to the maturity date.
To simplify it, the principal amount will be the amount of money that an individual is investing right at the beginning, r would be the interest rate that’s received on the investment and n is the total number of durations that the investor is investing for.