Default interest is an increased rate of interest that accrues on a loan after an event of default, set by the loan documents — commonly several percentage points above the contract rate. It is intended to compensate the lender for the added risk and cost of administering a defaulted credit. Whether it is enforceable in full depends on state law and, in bankruptcy, on whether the claim is oversecured.
Default interest and late charges can add materially to the payoff demand, which is why the amount a borrower owes often exceeds the unpaid principal balance. For pricing, accrued default interest is upside rather than a certainty: it is collected only if the borrower repays, refinances, or sells with enough equity, and it may be challenged as an unenforceable penalty. See how buyers price a CRE loan.
Why credits like this reach a workout desk: bank noncurrent commercial real-estate loans have risen while reserve coverage slips at community banks (FDIC Quarterly Banking Profile), and roughly $957 billion of commercial and multifamily mortgage debt was scheduled to mature in 2025 — against a total market of about $4.8–5.0 trillion, ~38% of it held by banks and thrifts (Mortgage Bankers Association). See the CRE distress statistics hub for the full figures and sources.
Primary sources: FDIC Quarterly Banking Profile, Mortgage Bankers Association, and interagency (FDIC / OCC / Federal Reserve) guidance on CRE loan accommodations and workouts. Figures are directional and updated periodically; confirm the latest release before relying on a specific number.
Not always. Courts in some jurisdictions scrutinize whether the increase is a reasonable estimate of the lender’s harm or an unenforceable penalty.
Under Bankruptcy Code section 506(b), an oversecured creditor may recover post-petition interest, and many courts allow the contract default rate subject to equitable considerations; an undersecured creditor generally may not.
Yes. A buyer acquires the right to collect it along with the rest of the debt. Request a confidential review.