A maturity date is a deadline for settling a financial agreement. Typically, one party owes another party a sum of money by the maturity date. In practice, one person usually makes payments rather than paying the entire sum on the maturity date. The concept of a maturity date applies to a variety of financial obligations.
You can buy bonds with maturity dates that range from two or three years up to 30 years. This means the organization you bought your bond from must give you back your original investment on that date. In the meantime, you will collect interest. If you don't want to wait until maturity to get your money back, you can sell your bond to someone else. The new owner would then get the original investment back on the maturity date.
When you have a 30-year mortgage, it means the mortgage matures in 30 years. Payments have to be timed so the full amount of the mortgage is paid off by the maturity date. Mortgages come in a variety of lengths, depending on the lender. You pay interest on the money loaned to you and agree to pay all the interest and principal by the maturity date.
Mortgage lenders don't wait until the maturity date to receive payments. Typically, you must pay each month at a pace that guarantees payback of the loan by maturity. Auto loans and business loans work the same way. Some loans allow lower payments for several years, then a "balloon" payment at the end pays off the rest of the loan on the maturity date.
Whole life insurance policies usually mature when you, the policyholder, turns 100. This means that when you turned 100, you would get the full value of the policy paid to you. However, since most people don't live to be 100, the policy pays a beneficiary, as agreed upon contractually. This payment is a set amount that you agree to when buying the policy.
With a universal life policy, you get the face value of the policy at maturity, unless you have elected to have the death benefit continue past the maturity date. In other words, even though you have finished making payments, the policy will pay your beneficiary when you die. Technically, the maturity date is extended to the date of your death.
When you buy a certificate of deposit, or CD, from a bank, you agree to leave your money in the CD for a specific length of time. This is the maturity. A one-year CD has a maturity date set one year from when you buy it. You receive interest up to the maturity date, and then you get all of your money back. Some banks will automatically reinvest your CD proceeds into a new CD with a new maturity date if you don't notify them that you want your money back.
- FAQs: CDs -- Certificates of Deposit
- Stephenson, Sanford, Thone, PLC-Attorneys at Law: Why Does the Maturity Date of a Mortgage Matter?
- Business Dictionary: Maturity Date
- InCharge: Basics of Bonds -- Maturity, Coupons and Yield
- Financial Web: What Does Loan Maturity Mean?
- Bill Boersman -- On Life Insurance: What Does “Policy Maturity” and Associated Terms Really Mean?
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