Technical Default

AAA

DEFINITION of 'Technical Default'

A deficiency in a loan agreement that arises not from a failure to make payments as promised, but from a failure to uphold some other aspect of the loan terms. Technical default indicates that the borrower may be in financial trouble, and can trigger an increase in a loan's interest rate, foreclosure or other negative events.

INVESTOPEDIA EXPLAINS 'Technical Default'

For example, a real estate co-op can go into technical default if it has failed to keep up with building maintenance and repairs, even though the mortgage is paid up. Homeowners with mortgage payments that are current can find themselves in technical default if they fail to pay property taxes or homeowner's insurance premiums. A corporation could go into technical default if it falls short of meeting promised operating ratios, such as the proportion of debt-to-equity, even if it has been making all loan payments as agreed.

RELATED TERMS
  1. Sovereign Default

    A failure on the repayment of a county's government debts. Countries ...
  2. Strategic Default

    A deliberate default by a borrower. As the name implies, a strategic ...
  3. Notice Of Default

    A public notice filed with a court stating that a mortgage borrower ...
  4. Default

    1. The failure to promptly pay interest or principal when due. ...
  5. Default Risk

    The event in which companies or individuals will be unable to ...
  6. Credit Default Swap - CDS

    A swap designed to transfer the credit exposure of fixed income ...
Related Articles
  1. Insurance

    Credit Default Swaps: What Happens In A Credit Event?

    The credit crisis of 2008 prompted important changes to the settlement of credit default swaps.
  2. Insurance

    Is Loan Protection Insurance Right For You?

    This coverage can keep you from defaulting on your loans when you're in financial trouble.
  3. Investing Basics

    What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how to check the score.
  4. Bonds & Fixed Income

    Credit Default Swaps: An Introduction

    This derivative can help manage portfolio risk, but it isn't a simple vehicle.
  5. Options & Futures

    Facing Co-Op Bankruptcy

    Co-op investors can often be penalized for other people's actions. Read on to learn about the most common types of co-op default.
  6. Credit & Loans

    Student Loan Deferment: Live To Pay Another Day

    Extending your principal repayment date can increase your chances of fighting off default.
  7. Credit & Loans

    What is the difference between APR and APY?

    Learn about the difference between the calculations for APR and APY. APY takes into account the number of times that the interest rate is applied on an amount.
  8. Credit & Loans

    Are APRs different in different countries?

    Learn about the term APR and how it is used in the United States and other countries. Explore why different lenders charge different APRs.
  9. Credit & Loans

    What loans do and don't have an APR?

    Learn about what annual percentage rates (APR) are and what they mean. Explore different fixed and variable APRs charge by different lenders.
  10. Credit & Loans

    What is a bank's legal liability when issuing a letter of credit?

    Learn the responsibility of banks that issue letters of credit Letters of credits ensure payment on transactions between parties that have no relationship.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center