What is a Maturity Date?

The maturity date is the date on which a debt must be paid in full. On this date, the principal amount of the debt is fully paid, so no further interest expense accrues. The maturity date on some debt instruments can be adjusted to be on an earlier date, at the option of the debt issuer. For example, the issuer of a bond may have the option to buy back the bond earlier than the official maturity date, thereby shortening the period during which it accrues interest.

The principal associated with a debt instrument may be entirely payable as of the maturity date, or it may be payable gradually, over the term of the instrument, depending on the terms associated with the instrument.

Characteristics of a Maturity Date

The key characteristics of a maturity date are as follows:

Repayment of principal. On the maturity date, the borrower is obligated to repay the principal amount of the debt instrument to the lender or bondholder.
End of financial obligation. The maturity date marks the conclusion of the financial agreement, at which point the borrower's obligations (e.g., interest payments, principal repayment) are fully discharged.
Fixed or variable date. The maturity date may be a specific, predetermined date (e.g., for fixed-term loans or bonds), though some instruments, like perpetual bonds, may not have a maturity date.
Interest payments cease. For interest-bearing instruments, interest payments typically stop after the maturity date since the principal is fully repaid.
Impact on pricing. Instruments approaching their maturity dates are less influenced by market conditions and are typically priced closer to their face value, assuming the borrower is creditworthy.
Legal significance. The maturity date is legally binding, as stipulated in the loan agreement, bond indenture, or other financial contracts.
Role in financial planning. For investors and borrowers, the maturity date helps in cash flow planning and investment decision-making.
Settlement of obligations. On this date, any outstanding obligations related to the instrument, such as unpaid interest or fees, must also be settled.

Types of Maturity Dates

Long-term debt instruments are typically considered to have maturity dates 10 years after their issuance dates. Medium-term debt instruments have maturity dates between four and 10 years after their issuance dates, while short-term instruments cover shorter periods. Examples of debt instruments are bonds, loans, and mortgages.

Maturity Date Example

As an example of a maturity date, Big Tech Company issues a 7% bond with a 30-year maturity on January 15, 2024. The maturity date of this bond will be 30 years later, in 2054. The bond also contains a call feature that allows Big Tech to call the bonds after five years, at which point the maturity date can be accelerated.