When can late-payment interest be applied to your mortgage?

One of the concepts that have to do with credits is that of those known as interest on arrears.

Thomas Osborne
Thomas Osborne
17 October 2022 Monday 00:30
5 Reads
When can late-payment interest be applied to your mortgage?

One of the concepts that have to do with credits is that of those known as interest on arrears. What do they consist of and how should we take them into account as individuals? It is important to analyze the concept to know everything you need to keep in mind and avoid overpaying. Also, the different legislations that regulate these interests.

In the first place, going to the concept, it should be noted that default interest is that which is applied as a penalty when the debtor fails to comply with payment obligations. In other words, the objective of these interests is to repair the damage that the creditor has due to the delay in the payment of the debt. For example, in the case of a mortgage loan, they are compensation that is paid to the bank when the client does not meet the installments within the agreed terms.

Thus, default interest begins to be applied from the first day of delay in the payment of the mortgage installment. In other words, in addition to the unpaid installment, the default interest corresponding to the debt must be added.

The new legislation has changed the legal basis, but it is worth going back to where we come from to understand everything better. Default interest or default interest are specified in the financial conditions that appear in the mortgage deed. Until Law 1/2013, which established measures to reinforce the protection of mortgage debtors, they could exceed 20%, which meant multiplying the ordinary interest from 5 to 10 times.

The Consumer Protection Act recognizes as "abusive clauses that involve the imposition of disproportionately high compensation to consumers and users who do not meet their obligations." In accordance with this law, default interest could be considered abusive because, in many cases, it involved disproportionate compensation, which has generated a great deal of litigation in the courts to resolve this issue.

Article 114 of the previous mortgage law stated that "default interest may not exceed three times the legal interest on the money and may only accrue on the principal pending payment."

The legal interest on money is established each year in the General State Budgets. Currently, the legal interest rate of 3% is still in force, the same as in the last 5 years, so default interest could not exceed 9%.

On the contrary, the new mortgage law, which entered into force on June 16, 2019, established some changes in the limit of default interest with respect to the previous law. Firstly, it is now set on the remunerative interest, not on the legal interest of money.

Second, a maximum of 3 percentage points can be added to the remunerative interest. This means that, if the client is paying an interest of 1.99% on the mortgage and is late in paying the installments, with the new mortgage law, the default interest that the bank can apply cannot exceed 4.99 %.

In order for a creditor to be able to demand default interest, certain requirements must be met simultaneously. First of all, you have to fulfill your contractual and legal obligations. On the other hand, he may not have received the amount due on time unless the debtor can prove that he is not responsible for the delay.

In the event that the parties have agreed payment schedules, when any of the installments is not paid on the agreed date, the interest and compensation provided for in this law will be calculated solely on the basis of the amounts due.