Default Rate Premium Calculator

Default rates compound during delinquency.

Loan balance

Note rate %

Default rate step-up %

Default months

Default interest accrued

$233,333

Regular interest accrued

$140,000

Premium cost over regular

$93,333

How the math works

Default rate = note + step-up. Interest = balance × rate × months/12. Premium = default − regular.

$3.5M × 10% × 8/12 = $233k default. vs $140k regular = $93k premium — material incentive to cure quickly.

How to Use

Enter loan balance.
Enter note rate %.
Enter default rate step-up %.
Enter default months.
Read default interest accrued.

Frequently Asked Questions

What's default rate?

Contractual interest rate after default, typically note rate + 3-5% (sometimes up to 18% if note rate permits). Applied retroactively to default date in many contracts. Creates real cost for borrower and negotiation leverage for lender.

Typical premium?

Commercial mortgages: +3-5%. SBA loans: +3%. Construction loans: +3-6% (highest). Residential: +2-4%. Hard money: up to 15-24% total rate in default. Check loan docs carefully — premium compounds rapidly.

Enforcement?

Enforceable if in loan documents. Applied from default date or cure date. Often waived as part of loan mod negotiation (borrower gets regular rate back, lender gets mod terms). Liquidation: default rate continues until sale, unpaid bid creates deficiency.

How does this interact with the rest of the capital stack?

Each tier of the stack affects the next. Senior debt constrains LTC and DSCR. Mezz and pref consume equity spread. Interest rate hedges protect DSCR but cost premium. Always model the full stack holistically — optimizing one tier alone often degrades another. Institutional underwriters run three or four scenarios across the stack before committing capital.