Whether you're investing or borrowing, knowing the maturity date for an investment or loan is essential. A maturity date is the specific date when your final payment for a loan is due or when a financial product may be redeemed without penalty for its full market value or for the original investment amount you initially put into it when you bought it. 

For investors, a maturity date indicates the period of time during which they’ll receive interest payments, and in the case of a bond or CD, the date upon which they will receive their principal back.

Paying off your loans on time is an important money management principle, and knowing your maturity date will help you determine when you’ll make your final payment and be debt-free.

What Is a Maturity Date in Finance?

A maturity date is when the principal amount of a debt instrument, like a certificate of deposit (a CD), treasury bill, bond, or note, becomes due. It also refers to the amount of time you have by which a loan you have taken out must be fully paid back. 

For example, if the maturity date for a personal loan is five years from the date you borrow, you have five years to repay the principal and interest in full. Once the last payment has been made, the agreement between the lender and borrower ends.

You can find the maturity date on the security’s offering certificate or the loan documents you sign on the date you take out the loan. If you’re an investor, your principal amount and any remaining interest will be repaid on the maturity date, and you’ll stop receiving further interest payments.

There are several types of maturity dates that help sort securities based on term length:

  • Short-term maturity: securities maturing in 3-5 years.
  • Medium-term maturity: securities maturing in 4-10 years.
  • Long-term maturity: securities maturing in 10 years or more.

Purpose of Maturity Dates

When you borrow money via a loan, the maturity date establishes its end date. The maturity date functions similarly for all debt instruments as it indicates the date when you need to repay the principal amount and when the debt terminates. Here’s a look at how maturity dates work for different instruments.  

Bonds

A bond pays a fixed amount of interest until it matures. Once it reaches the maturity date, it stops paying out interest. Bond maturity dates vary for different types. For example, newly-issued government-issued bonds usually have a 5 to 30-year maturity date, while corporate bond issuers typically offer a maturity date of no more than 10 years. 

Once the bond reaches maturity, you can cash it out to receive the full face (aka, “par”) value of the bond back (bonds are typically issued a face value of  $1,000 per bond) plus the interest it has earned since the last interest payment.

Promissory Notes

A promissory note is a written promise to repay the borrowed amount by a specific date. The note includes the terms of the agreement, such as the maturity date and payment schedule. The maturity date for promissory notes can be a few months to a few years, depending on the type of agreement.

For example, if you borrow a 15-year mortgage, the promissory note will mention the maturity date is 15 years from the date you borrowed.

CDs

A Certificate of Deposit (CD) is an investment product issued by a bank or financial institution that is backed by the Federal Deposit Insurance Corporation (FDIC). The maturity date for a CD helps establish the length of the investment. If you choose not to cash the CD in on the maturity date, it can be automatically renewed (after a typical 10-15 day waiting period) for the same term, and at the current market interest rate the bank is offering for that maturity. For many investors, CDs can be an important part of the portfolio for financial freedom in retirement.

Mortgage

Maturity dates for a mortgage help indicate the term of the loan. Typically, mortgages have a term of 15 to 30 years. So, the maturity date for a 30-year mortgage will be 30 years from the date it is issued. Maturity dates also help determine the interest payments for the loan. For example, mortgages with longer terms usually have smaller monthly payments.

How To Calculate the Maturity Date

You can check your loan contract or bond document to determine the maturity date for a debt instrument. The contract will mention the date of the last payment, which is the maturity date for the loan. For example, if you borrowed a personal loan of $10,000 with a 60-month loan term on March 4, 2021, the loan maturity date will be March 4, 2026.

The maturity date will also impact the maturity value, which is the amount a loan issuer or security investor receives when a loan or debt security matures. Debts may accrue interest using simple or compound interest, and you can calculate it manually if you know the instrument's maturity date.

Simple Interest

If a debt instrument uses simple interest, you can calculate the maturity value using the following formula:

Maturity value = principal amount + (principal amount x interest x years to maturity)

For example, if you purchase a bond for $2,000 that earns 6% interest and reaches maturity in 8 years, the maturity value is $2,960. This means that in addition to getting the principal (aka, par value) of $2,000 back, you’ll earn an interest of $960 when the bond matures.  

Compound Interest

For compound interest, here’s the formula you can use:

Maturity value = principal amount x (1+interest rate)^ compounding periods

Let’s say that you have a $10,000 bond for a term of five years, with a 5% interest rate compounded monthly. The bond matures in five years. The period interest rate here will be 0.004 (0.05/12).

  • The number of compounding periods is 60 ( 5 years x 12 months)
  • The maturity value is $10,000 (1+0.04)^60, which is $12,706.

You can also use a maturity value calculator to determine the value of an instrument that uses compound interest.

What Happens When You Miss the Date?

If you borrow a loan and fail to make the last payment on the loan, you have technically missed a payment on the loan and are at risk of defaulting, even though you may only have one final payment left. Your account will also continue to accumulate late fees, penalties, and interest until you pay the outstanding amount and close the account for good. Your credit score may be damaged if you go more than 30-days past due, and if you are more than 60-days late, your lender may mark your account as a charge-off.

Can You Extend the Maturity Date?

A maturity date may change for several reasons, such as when you default, pay off the loan early, or opt for early withdrawal for an investment. If you’ve borrowed money on a loan and don’t think you can make the final payment, one option is to ask the lender to extend the maturity date.

Many lenders offer loan extensions to provide you the opportunity to make the last payment. When you postpone a payment, it pushes back the maturity date, which may impact the interest. Similarly, you may have to pay a prepayment penalty (if your loan agreement includes one), and you repay the loan before maturity.

Brad Reichert, founder and managing director of Reichert Asset Management, sums up how maturity dates affect a loan: “Some loans will mature 30 or 31 calendar days after the date of your final payment, and some will mature on the due date of your final payment, exactly,” Reichert explains.  

“To ensure you don’t default on your final loan payment and fully satisfy your loan, it’s important to refer to your original documents (or copies of your original documents) to confirm the exact date on which your lender will consider your loan paid in full and closed successfully,” Reichert shares. “For debt-related securities, the maturity date will let you know when you will receive the par value (or maturity value) of your investment back in cash, so you’ll know when you can use or reinvest the proceeds.”

The Bottom Line on Maturity Dates

The maturity date of a financial instrument marks the date when the principal amount is due. For borrowers, it’s important to know the maturity date to understand when they’ll make the last payment to a financial institution and be debt-free. For investors, the maturity date is the expiration date on which interest payments will stop, and the principal amount will be repaid.