If you get to the seven day mark and you have not heard back from the borrower, or you received an unsatisfactory response (and anything short of payment is an unsatisfactory response), the next step is to issue a default notice claiming the higher interest rate.

It may seem harsh to claim the higher interest rate. After all the poor borrower seemingly cannot afford the lower interest rate and here you are claiming the higher rate. However it is one of those circumstances where you unfortunately have to be cruel to be kind. It is a tool for concentrating the borrower’s mind. Just as speeding tickets motivate people to slow down the higher interest rate is a tried and tested institution for bringing about future compliant behaviour. It is used, and has been used, in all loans all around the world going back hundreds of years. It is used because experience shows that it works.

The worst thing you can do is to waive the higher rate of interest. The borrower sees that as an indication that you are not going to insist they abide by the terms of the mortgage. The borrower may think that if you don’t want your interest under the mortgage, maybe you don’t want your principal, maybe you might agree to part with some of it on account of extenuating circumstances. It is a slippery slope.

The notice must be issued by a mortgage lawyer. A mortgage default notice is highly technical and if you get it wrong that can give rise to a spurious defense that will tie you up in court for months further down the track.

A default notice is prescribed by the