Definition of Maturity Date
A maturity date is the last day of a mortgage term. On or before the maturity date, the mortgage must either be renewed, paid in full or refinanced.
Example of Maturity Date
On July 1, 2005 Mr. McGillicuddy obtains a $200,000 mortgage with a 30 year amortization rate and a 5 year term. The maturity date of the mortgage is July 1, 2010, or 5 years after the mortgage was issued. Mr. McGillicuddy will need to renew the mortgage, pay it in full, or obtain refinancing for the mortgage on or before July 1, 2010.
Normally, a mortgage holder will send mortgage renewal papers to the mortgage borrower a few months before the maturity date. A new interest rate may be offered, depending on the prevailing interest rates and the interest rate of the original mortgage.
A mortgage holder is under no obligation to renew a mortgage with their current lender and it’s always advantageous to confirm that the renewal rate you are being offered is competitive in the current marker. At the same time, a mortgage borrower is under no obligation to renew the mortgage, provided the borrower obtains alternate financing from a new mortgage lender to pay the balance in full at maturity.
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Refinancing at Maturity
Mortgage maturity is an excellent time to consider refinancing, especially if mortgage interest rates are much lower than when the mortgage was originally issued. If the original mortgage carries prepayment penalties, payment of the mortgage balance through refinancing on the exact maturity date will avoid the cost of prepayment penalties.
Example
Mr. McGillicuddy’s mortgage carries prepayment penalties of 3 months of interest payments if the mortgage is paid in full or refinanced prior to the maturity date of July 1, 2010. However, Mr. McGillicuddy has arranged to lower his interest and increase his mortgage balance by refinancing with a new lender and has arranged for this to occur on the date of maturity, July 1, 2010. Mr. McGillicuddy’s new lender pays off the original mortgage on this date and takes a new mortgage with Mr. McGillicuddy.
Because the term has ended at the maturity date, Mr. McGillicuddy does not incur prepayment penalties for the refinance or the switch to a new lender.
At First Foundation, we believe that mortgage renewal is an excellent time to review your mortgage and to shop around for a better rate. Since we are a mortgage brokerage firm, we do the shopping for you and provide you with the best products and rates that match your needs. When you receive your renewal documents from your current lender, be sure to contact us. We’ll provide you with a honest analysis of your renewal rate and what options are available to you.
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