What Is the Default Rate? The default rate is the percentage of all outstanding loans that a lender has written off as unpaid after a prolonged period of missed payments. The term default rate–also called penalty rate–may also refer to the higher interest rate imposed on a borrower who has missed regular payments on a
What Is Default Risk? Default risk is the risk that a lender takes on in the chance that a borrower will be unable to make the required payments on their debt obligation. Lenders and investors are exposed to default risk in virtually all forms of credit extensions. A higher level of default risk leads to
What Is a Defeasance Clause? A defeasance clause is a provision in some mortgage contracts indicating that the borrower will receive the title to the property once all of the mortgage payments have been made. Key Takeaways A defeasance clause in a mortgage provides for the borrower to receive the title to the property once
What Is the Defeasance Process? The defeasance process is a means by which borrowers can substitute securities, typically bonds backed by the U.S. Treasury, for the existing collateral on their mortgage, such as a home or similar property. It can also be used in other kinds of financial transactions. The securities must be of sufficient
What Are Defeased Securities? Defeased securities are securities that have been secured by another asset, such as cash or a cash equivalent in a sinking fund, by the debt-issuing firm which can then nullify its balance sheet obligation. Defeasance, more generally, is any provision in a contract that voids a bond or loan on a
What Is a Defective Title? The term “defective title” refers to an impaired title on a piece of property or other asset. The defect or impairment on the title can be in the form of a lien, mortgage, judgment, or other type of encumbrance. Because other parties can lay claim to the property or asset
What Is a Defensive Company? A defensive company is a corporation whose sales and earnings remain relatively stable during both economic upturns and downturns. Defensive companies tend to make products or services that are essential to consumers. These products are likely to be purchased whether the economy is booming or in a recession. Defensive firms
What Is the Defensive Interval Ratio (DIR)? The defensive interval ratio (DIR), also called the defensive interval period (DIP) or basic defense interval (BDI), is a financial metric that indicates the number of days that a company can operate without needing to access noncurrent assets, long-term assets whose full value cannot be obtained within the
What Is a Defensive Stock? A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market. There is a constant demand for their products, so defensive stocks tend to be more stable during the various phases of the business cycle. Defensive stocks should not
What Is a Deferred Annuity? A deferred annuity is a contract with an insurance company that promises to pay the owner a regular income, or a lump sum, at some future date. Investors often use deferred annuities to supplement their other retirement income, such as Social Security. Deferred annuities differ from immediate annuities, which begin
