A loan maturity date is the day on which a borrower’s last loan payment is due. The maturity date means that all previous principal and interest payments have been made. In the world of mortgages, it refers to the final day of a mortgage term. By the time of the maturity date or before it, a mortgage should either be renewed, refinanced, or fully paid. Typically mortgage lenders will notify a borrower shortly before the mortgage maturity date to offer refinancing or renewal.
For example, let’s say a borrower receives a $500,000 mortgage with a typical 30-year amortization and a 10-year term. The borrower makes all of the required principal and interest payments during the 10-year term of the mortgage. By the time the borrower reaches the last payment of the term, they can either decide to renew the mortgage for an additional 20 years, refinance the mortgage or pay any remaining amount in full.
It is important to note that once the mortgage term is over, a borrower can “shop around”. This means that they can receive financing from a different lender if they get an offer for better rates. Switching lenders or refinancing is especially advantageous if interest rates are lower than when the borrower initially received the mortgage.
If there is a prepayment penalty clause in the original mortgage, the borrower can use refinancing to pay the remaining mortgage balance. If done on the mortgage loan maturity date, the borrower will avoid any prepayment penalties.