The interest rate on late payments can ruin mortgage borrowers!
Many mortgage borrowers are no longer able to pay increased interest rates and instalments. They default on payment to the bank, with the result that the loan goes to debt collection. The interest rate will then be raised to the law's much higher interest rate on late payment of 12.5%, and debt collection costs will be incurred. The amount of interest on overdue payments is based on an EU directive, which was never intended to apply to mortgage borrowers. Politicians have been concerned with reducing debt collection costs. Now is the time to set a lower interest rate for late payment for borrowers who are consumers.
The key policy rate is high
Norges Bank has raised its key policy rate a number of times, most recently to 4.5% p.a.
It is especially those with mortgages who have the greatest burdens. Many now have a mortgage rate of around 6% p.a. High electricity bills and municipal taxes, expensive fuel and galloping food prices have depleted people's reserves.
Debt collection agencies report that mortgage defaults are increasing sharply. More and more people are affected by the high interest rate on late payments.
For those who initially have a mortgage with an interest rate of around 6% p.a., an increase in the interest rate on late payment will result in a doubling of the interest rate and entail a significant drain on the borrower's equity in the home. Or if you will; a transfer of values from the one who has little to the one who has a lot.
With effect from 1 January 2025, the interest on overdue payments has been set at 12.5%. No lower interest rate has been set for the consumer.
Determined every six months
Pursuant to the Interest on Late Payments Act, the Ministry sets the amount of interest on overdue payments every six months at a fixed percentage annual rate.
It shall correspond to the key monetary policy rate as set by Norges Bank on 1 January and 1 July of the year in question, plus at least eight percentage points. This is based on an EU directive, but the directive was intended to be limited to commercial transactions and not to regulate transactions with consumers or interest rates in other contexts.
For debtors who are debtors in their capacity as consumers, the Interest on Late Payments Act allows the Ministry to set a lower interest rate for late payments.
Nor is there anything to prevent agreeing a lower interest rate on overdue payments with the creditor, but it is naïve to believe that a creditor bank does not charge the high interest rate provided by law. In the large corporate market, however, it is common to have a late payment interest rate of 2% above the agreed loan rate. It is difficult to understand why mortgage borrowers should pay much more.
Many debtors are having a very difficult time
The authorities have been concerned with limiting the burden on debtors, and have reduced the size of the collection costs of debt collection. But the interest burden is much more onerous. At the moment, many debtors are having a very difficult time. Those who are unable to service their mortgage have taken their share of the fight against inflation. The time has come to set a lower default interest rate.
