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.

BREAKING DOWN '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. Default

    1. The failure to promptly pay interest or principal when due. ...
  2. Credit Crisis

    A crisis that occurs when several financial institutions issue ...
  3. Direct Consolidation Loan

    A loan that combines two or more federal education loans into ...
  4. Renegotiated Loan

    The result of an agreement between a borrower and a lender to ...
  5. Term Loan

    A loan from a bank for a specific amount that has a specified ...
  6. Deferred Interest Mortgage

    A mortgage loan that allows the borrower to make minimum payments ...
Related Articles
  1. Personal Finance

    What Happens in a Default?

    Borrowers are in default when they don’t honor a debt, whether their failure is intentional or not.
  2. Investing

    5 Ways To Avoid Foreclosure

    If you go into default on your mortgage payments, don't worry, there are still ways to save your home.
  3. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
  4. Personal Finance

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  5. Personal Finance

    Avoid Foreclosure: How To Handle An Underwater Mortgage

    Foreclosure is the biggest fear of any struggling homeowner. These tips just might save your credit rating.
  6. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  7. Insights

    Why and When Do Countries Default?

    Countries can default on their debt. This happens when the government is either unable or unwilling to make good on its fiscal promises.
  8. Personal Finance

    Reduce Interest With An All-In-One Mortgage

    "Offset" mortgages combine a checking account, home-equity loan and mortgage into one account.
  9. Personal Finance

    Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.
RELATED FAQS
  1. What is the difference between student loan default and delinquency?

    Learn the differences between simply becoming delinquent on your student loans vs. actually defaulting on your student loan ... Read Answer >>
  2. What level of default rate is typical for the credit services industry?

    Learn how default rates affect businesses in the credit services industry, and what rates are considered normal for a company ... Read Answer >>
  3. What is PMI, and does everyone need to pay it?

    Also known as "Primary Mortgage Insurance," PMI is the lenders (banks) protection in the event that you default on your primary ... Read Answer >>
Trading Center