What Is Mortgage Maturity?
When you take out a loan, your lender calculates your payment schedule so that you finish paying the loan within the loan term. The end of the loan term is usually, but not always, the same as the mortgage maturity, which is when your last payment is due.
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Definition
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With any debt, the maturity date represents when you need to make your last payment. After making the last payment, you finish paying off both your loan balance and the interest. You no longer have any contractual obligations to your lende. In the case of the mortgage, you own the property free and clear after the maturity date.
Loan Term
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If you follow your mortgage payment schedule closely, the maturity date is usually the same as the end of the mortgage loan term. However, mortgage maturity is not the same as the loan term. Your lender uses your loan term to work out your mortgage payment schedule. For example, if your loan term is 15 years, your lender prepares a schedule that allows you to pay off your mortgage within 15 years, taking into account the prevailing interest rate and your loan amount.
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Different Maturity and Loan Term
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Although unusual, it is possible for your mortgage maturity to be different from your loan term. This happens when you take out a balloon mortgage, which is when you make small regular payments and then make a large lump sum payment at the end of the loan. For example, on a seven-year balloon mortgage, your lender calculates your regular payments as if you were paying it off over 30 years. However, you make a lump sum payment after seven years to pay off the loan. In this case, your loan term is 30 years, but your mortgage maturity is seven years.
Early Payoff
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You can choose to make extra payments beyond what your lender requires to pay off the mortgage before the maturity date. This reduces your interest costs, because you pay interest over a shorter period of time. It also means that you get to own your property earlier. However, you may have to pay your lender a pre-payment penalty if you pay off the entire loan early. This is usually a percentage of your outstanding balance or the interest over a certain number of months.
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References
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