Remaining Term

Have you ever noticed the term “remaining term” displayed on financial statements, loan documents, or contracts and wondered what it means? Understanding the remaining term is essential for making informed financial decisions, whether you’re managing a loan, a lease, or an investment.

In this article, we’ll explore:

What the remaining term signifies

How it affects financial commitments

Why it matters in loans, investments, and asset depreciation

With real-world examples and easy-to-understand explanations, you’ll gain a clear grasp of how the remaining term influences your financial planning. Let’s dive in!

What is the Remaining Term?

The remaining term of a bond, mortgage, lease, or rental agreement simply refers to the number of outstanding payments left to be paid by the borrower or renter to meet the complete term of the contract. For example, if a home loan has an initial term of 20 years but 5 years have already passed since the first disbursement date, the remaining term will be 15 years.

Understanding Remaining Term

To understand the remaining term better, let’s break it down step-by-step:

The total term of any agreement, such as a car loan or home loan, is decided upfront, i.e., 5 years, 10 years, 20 years, etc.

Payments are made regularly through EMIs (Equated Monthly Instalments), including principal and interest components.

With each EMI payment, a portion of the principal is also repaid in addition to interest.

This means that with time, as more EMIs are paid, the outstanding principal amount keeps reducing.

The remaining term indicates how many more payments are left to clear the outstanding loan amount at the agreed interest rate.

It keeps decreasing each month/year automatically as repayment progresses.

Calculation of Remaining Term

The remaining term can be easily calculated using a loan calculator or simple maths. It takes the initial term minus the years or months that have already elapsed since the loan commencement date.

For example, let’s take a home loan of Rs. 50 lakhs for 20 years at 8% interest:

The initial loan term was 20 years

The current date is Jan 2025 (loan started in Jan 2010)

Time elapsed since loan start is 15 years (2025 – 2010)

Remaining term = Initial term – Time elapsed
= 20 years – 15 years
= 5 years

This means the borrower has 5 more years remaining payments to complete the 20-year home loan term.

Importance of Remaining Term

Here is some key importance of keeping track of your remaining term:

Planning finances: Knowing your remaining term helps you plan your expenses and allocate budgets for EMIs each month. It ensures repayment obligations don’t catch you by surprise.

Avoid penalties: Being aware of due dates through close monitoring of the remaining term helps you make timely payments and avoid penalty charges for late or missed instalments.

Budget management: A higher remaining term indicates future monthly payments. You can then plan your finances accordingly to avoid straining your budget.

Resale or upgrade options: Your resale value takes a hit with a large remaining outstanding term for costly items. A lower term improves resale potential if you wish to upgrade sooner.

Peace of mind: Simply seeing your remaining term decrease monthly provides a sense of repayment progress. It motivates you to keep paying on time to complete the process efficiently.

Tracking payment history: Maintaining records with decreasing remaining terms shows responsible financial behaviour that can benefit you when seeking future loans or credits.

Examples of Remaining Term

Here are some examples of the remaining terms:

Mobile phone purchase through monthly instalments: You bought an expensive smartphone 9 months ago on a 12-month EMI plan. The remaining term now would be 12 – 9 = 3 months.

Home appliance on cash-on-delivery scheme: You bought an LED TV 2 years back but are still paying EMIs through your electricity bill. If the total term is 3 years, the remaining term after 2 years would be 3 – 2 = 1 year.

Car loan: You took a loan of ₹500,000 for a sedan in January 2020 at 8% interest for 5 years. In mid-2022, the remaining term is 5 – 2.5 = 2.5 years.

Two-wheeler on long-term EMI: In mid-2021, a motorcycle was financed via a banking partner for 48 months. The remaining term after 6 months of usage would be 48 – 6 = 42 months.

Home renovations with delayed payments: Construction was completed in 2018, and repayment was spread over 60 months. In the 42nd month, the remaining term equals 60 – 42 = 18 months.

Consumer durables bundled package: A fridge, A/C, and TV were purchased on a 3-year financed bundle. If 1.5 years have passed, the remaining term is 3 – 1.5 = 1.5 years.

Frequently Asked Questions

What is the remaining term of a financial instrument?

A financial instrument’s remaining term refers to the period remaining until its maturity date. When a bond is issued, it is assigned a par value and a maturity date. The remaining term is simply the time left until this pre–set maturity date.

Does the remaining term affect investment performance?

Yes, the remaining term can impact the investment’s performance. Generally, the shorter the remaining term, the less exposed the investment will be to interest rate risk and lower its potential returns. Longer remaining terms mean higher sensitivity to rate swings but with larger return opportunities if rates move in the investor’s favor.

How does the remaining term affect bond prices and yields?

The remaining term inversely affects bond prices and yields. The shorter the remaining term, the higher the bond’s price as it approaches par value at maturity. Conversely, a shorter time until maturity means less interest to accrue, so shorter-term bonds typically have lower yields than longer-term bonds of similar credit quality.

What factors should investors consider when evaluating the remaining term of an investment?

Investors should consider interest rate expectations and liquidity needs when evaluating an investment’s remaining term. Shorter terms reduce risk for those expecting higher future rates but provide less time for gains. Longer terms suit investors with a longer investment horizon and higher risk tolerance but lack short-term flexibility.

Are there different strategies for managing investments with varying remaining terms?

There are different strategies suitable for varying remaining terms. Shorter-term investments are better suited for strategies that preserve principles or produce income. Longer-term investments allow for strategies prioritizing growth potential through capital appreciation over multiple interest rate cycles.