What is a default interest?
Home loans come with a lot of interest and fees that are hard to understand. Default interest is one of those fees, however, not all borrowers ever see this fee since it is a penalty. The default interest fee is also widely known as a contract default interest fee or charge.
A default interest charge is written as a provision or specific part of the lending and borrowing contract that states that the seller or owner (lender) can charge the buyer in the contract late fees and penalties for missed or partial repayments. In other words, the interest continues to grow on the account and is charged to the borrower until the minimum is fully paid.
The average default interest fee or repayment in Australia, specifically Queensland, is 6.01% but every contract and state is different. Not only are home loan borrowers subject to a default interest rate, but there are also legal ramifications that can occur when repayment is continuously missed.
Banks and lending companies want to protect their wallets, which is why they write a default interest rate for late or missed repayments in the contracts. Borrowers should always read their contracts before signing and keep a copy in a safe place.
Default Interest Conclusion
Although a default interest rate can increase interest as well as the overall minimum repayment value on a mortgage, not all borrowers have to worry about the interest rate or late fee. Instead, borrowers should remind themselves using alarms and calendars when a repayment is due.