Eventually, the term of your mortgage will come to an end and you will have to repay the loan. When this happens, the mortgage “matures.” The maturity date, explicitly stated in the promissory note, is the date on which the final payment of your mortgage is due. Ideally this will be your final regular payment, but if you have a balloon mortgage, you will have to pay a significantly larger amount or come up with an alternative such as refinancing or negotiating an extension of the maturity date.
TL;DR (Too Long; Didn't Read)
Your mortgage matures when the loan term ends, called the maturity date.
Mortgage Maturity Date
When you sign your mortgage note, you will see all the terms and conditions of the loan. This includes loan amount, interest rate, payment and maturity date. The maturity date is the date when your final payment is due.
If you close a 30-year fixed-rate mortgage loan on May 1, 2019, the maturity date will be May 1, 2049. If your five-year balloon loan closed May 1, 2019, the maturity date will be May 1, 2024. Be aware of the terms when you accept the mortgage and verify that they match on the note.
Final Regular Payment
Conventional mortgages are amortizing loans. This means you make a set monthly payment every month from closing until maturity. A portion of the monthly payment satisfies interest, while the other portion reduces the principal balance.
Because interest is calculated on the unpaid principal balance, the payment will stay the same, but the interest portion will be less and the principal portion will be more with each payment. As the loan approaches maturity, your payment will be mostly principal until you make one final payment of all remaining principal and accrued interest on the maturity date.
Mortgage Balloon Payment
When you have a balloon loan, you make payments on a long-term amortization schedule, but the loan matures long before you get to the final payment. Say, for example, you have a five-year balloon on a 25-year amortization schedule. Your monthly payments are calculated as if you would pay the loan for a full 25 years. After five years, however, the loan will mature.
When the maturity date hits, you will pay the entire principal balance and accrued interest. If you can’t make that balloon payment, you’ll either have to refinance to a conventional mortgage or contact your lender to extend the maturity date. Some lenders will insert an automatic extension clause into the promissory note to address these situations.
If not, you must provide updated financial information and get a new appraisal because the lender will underwrite the extension as if it is a new loan request to make sure you still qualify. If the lender does not grant an extension, refinancing elsewhere is your only option.
If You Default
If you fail to pay your loan at maturity without making arrangements to refinance or extend the maturity date, the lender will declare a default. It will send a demand letter requiring you to pay the loan in full.
If you don’t make contact with the lender or fail to work out an agreement, the lender will begin foreclosure actions. Your property will be auctioned off or claimed by the bank as real estate owned. This is why it is important to know your loan and make arrangements if you won’t be able to pay the loan in full at maturity.
Carl Carabelli has been writing in various capacities for more than 15 years. He has utilized his creative writing skills to enhance his other ventures such as financial analysis, copywriting and contributing various articles and opinion pieces. Carabelli earned a bachelor's degree in communications from Seton Hall and has worked in banking, notably commercial lending, since 2001.