Maturity Dues

The "Maturity Date" refers to the date on which a financial instrument, such as a loan, bond, or certificate of deposit, reaches the end of its term and is due to be repaid in full. It is the predetermined date agreed upon at the time of issuing the instrument when the principal amount and any accrued interest or other applicable payments must be settled.

How Does a Maturity Date Work?

A maturity date is specified on every promissory note that's created during a money lending transaction which specifies when repayment must occur or else penalties are incurred by both parties.

The terms of the loan dictate how much total interest has been accrued so far, when the borrower must pay in full and how many monthly payments have been made towards repayment.

Maturity date may also refer to the time when an investment matures.It is the time when the principal invested is paid back to the investor and by the same time, interest payments cease to be paid.However, other kinds of investment may also be tagged as "callable."

This means that no fixed maturity date is set for the investment and such principal amount may be paid back to the investor at any given time.Maturity date is termed as expiration date for derivatives such as futures or options.

Why Does a Maturity Date Matter?

It matters because the term specifies when repayment of principal must be made in full and there will not be any more interest charges or other fees owed to the lender.

If a business is unable to repay all that it owes on time, this can have serious consequences for both parties involved since the lender will not be repaid and the borrower may end up in legal trouble.

Classifications of Maturity

To help investors in estimating as to when their principal investments will be paid back, maturity can be classified into these three:

Short-term

This refers to investments that are set to mature within one to three years.

Medium-term

This refers to investments that are going to mature in 10 or more years.

Long-term

Investments under this term generally mature in longer periods of time such as 30 years or more.