diff --git a/src/highlight.c b/src/highlight.c
index defbe55..a08d1f1 100644
--- a/src/highlight.c
+++ b/src/highlight.c
@@ -641,9 +641,6 @@
     int		error = FALSE;
     int		color;
     int		is_normal_group = FALSE;	// "Normal" group
-#ifdef FEAT_TERMINAL
-    int		is_terminal_group = FALSE;	// "Terminal" group
-#endif
 #ifdef FEAT_GUI_X11
     int		is_menu_group = FALSE;		// "Menu" group
     int		is_scrollbar_group = FALSE;	// "Scrollbar" group
@@ -882,10 +879,6 @@
 
     if (STRCMP(HL_TABLE()[idx].sg_name_u, "NORMAL") == 0)
 	is_normal_group = TRUE;
-#ifdef FEAT_TERMINAL
-    else if (STRCMP(HL_TABLE()[idx].sg_name_u, "TERMINAL") == 0)
-	is_terminal_group = TRUE;
-#endif
 #ifdef FEAT_GUI_X11
     else if (STRCMP(HL_TABLE()[idx].sg_name_u, "MENU") == 0)
 	is_menu_group = TRUE;
@@ -1534,11 +1527,6 @@
 	    control_console_color_rgb();
 #endif
 	}
-#ifdef FEAT_TERMINAL
-	else if (is_terminal_group)
-	    set_terminal_default_colors(
-		    HL_TABLE()[idx].sg_cterm_fg, HL_TABLE()[idx].sg_cterm_bg);
-#endif
 #ifdef FEAT_GUI_X11
 # ifdef FEAT_MENU
 	else if (is_menu_group)
diff --git a/src/proto/terminal.pro b/src/proto/terminal.pro
index d2e5992..061a668 100644
--- a/src/proto/terminal.pro
+++ b/src/proto/terminal.pro
@@ -19,7 +19,6 @@
 int term_use_loop(void);
 void term_win_entered(void);
 int terminal_loop(int blocking);
-void set_terminal_default_colors(int cterm_fg, int cterm_bg);
 int may_close_term_popup(void);
 void term_channel_closed(channel_T *ch);
 void term_check_channel_closed_recently(void);
diff --git a/src/terminal.c b/src/terminal.c
index eb9e780..cabcf9d 100644
--- a/src/terminal.c
+++ b/src/terminal.c
@@ -204,10 +204,6 @@
 // backspace key.
 static int term_backspace_char = BS;
 
-// "Terminal" highlight group colors.
-static int term_default_cterm_fg = -1;
-static int term_default_cterm_bg = -1;
-
 // Store the last set and the desired cursor properties, so that we only update
 // them when needed.  Doing it unnecessary may result in flicker.
 static char_u	*last_set_cursor_color = NULL;
@@ -2722,48 +2718,6 @@
 }
 
 /*
- * Cache "Terminal" highlight group colors.
- */
-    void
-set_terminal_default_colors(int cterm_fg, int cterm_bg)
-{
-    term_default_cterm_fg = cterm_fg - 1;
-    term_default_cterm_bg = cterm_bg - 1;
-}
-
-    static int
-get_default_cterm_fg(term_T *term)
-{
-    if (term->tl_highlight_name != NULL)
-    {
-	int id = syn_name2id(term->tl_highlight_name);
-	int fg = -1;
-	int bg = -1;
-
-	if (id > 0)
-	    syn_id2cterm_bg(id, &fg, &bg);
-	return fg;
-    }
-    return term_default_cterm_fg;
-}
-
-    static int
-get_default_cterm_bg(term_T *term)
-{
-    if (term->tl_highlight_name != NULL)
-    {
-	int id = syn_name2id(term->tl_highlight_name);
-	int fg = -1;
-	int bg = -1;
-
-	if (id > 0)
-	    syn_id2cterm_bg(id, &fg, &bg);
-	return bg;
-    }
-    return term_default_cterm_bg;
-}
-
-/*
  * Reverse engineer the RGB value into a cterm color index.
  * First color is 1.  Return 0 if no match found (default color).
  */
@@ -2909,10 +2863,34 @@
 #ifdef FEAT_TERMGUICOLORS
     if (p_tgc)
     {
-	guicolor_T fg, bg;
+	guicolor_T fg = INVALCOLOR;
+	guicolor_T bg = INVALCOLOR;
 
-	fg = gui_get_rgb_color_cmn(cellfg.red, cellfg.green, cellfg.blue);
-	bg = gui_get_rgb_color_cmn(cellbg.red, cellbg.green, cellbg.blue);
+	// Use the 'wincolor' or "Terminal" highlighting for the default
+	// colors.
+	if (VTERM_COLOR_IS_DEFAULT_FG(&cellfg)
+		|| VTERM_COLOR_IS_DEFAULT_BG(&cellbg))
+	{
+	    int id = 0;
+
+	    if (wp != NULL && *wp->w_p_wcr != NUL)
+		id = syn_name2id(wp->w_p_wcr);
+	    if (id == 0)
+		id = syn_name2id(term_get_highlight_name(term));
+	    if (id > 0)
+		syn_id2colors(id, &fg, &bg);
+	    if (!VTERM_COLOR_IS_DEFAULT_FG(&cellfg))
+		fg = gui_get_rgb_color_cmn(cellfg.red, cellfg.green,
+					   cellfg.blue);
+	    if (!VTERM_COLOR_IS_DEFAULT_BG(&cellbg))
+		bg = gui_get_rgb_color_cmn(cellbg.red, cellbg.green,
+					   cellbg.blue);
+	}
+	else
+	{
+	    fg = gui_get_rgb_color_cmn(cellfg.red, cellfg.green, cellfg.blue);
+	    bg = gui_get_rgb_color_cmn(cellbg.red, cellbg.green, cellbg.blue);
+	}
 
 	return get_tgc_attr_idx(attr, fg, bg);
     }
@@ -2927,41 +2905,20 @@
 	// colors.
 	if ((fg == 0 || bg == 0) && t_colors >= 16)
 	{
-	    int wincolor_fg = -1;
-	    int wincolor_bg = -1;
+	    int cterm_fg = -1;
+	    int cterm_bg = -1;
+	    int id = 0;
 
 	    if (wp != NULL && *wp->w_p_wcr != NUL)
-	    {
-		int id = syn_name2id(curwin->w_p_wcr);
-
-		// Get the 'wincolor' group colors.
-		if (id > 0)
-		    syn_id2cterm_bg(id, &wincolor_fg, &wincolor_bg);
-	    }
-	    if (fg == 0)
-	    {
-		if (wincolor_fg >= 0)
-		    fg = wincolor_fg + 1;
-		else
-		{
-		    int cterm_fg = get_default_cterm_fg(term);
-
-		    if (cterm_fg >= 0)
-			fg = cterm_fg + 1;
-		}
-	    }
-	    if (bg == 0)
-	    {
-		if (wincolor_bg >= 0)
-		    bg = wincolor_bg + 1;
-		else
-		{
-		    int cterm_bg = get_default_cterm_bg(term);
-
-		    if (cterm_bg >= 0)
-			bg = cterm_bg + 1;
-		}
-	    }
+		id = syn_name2id(wp->w_p_wcr);
+	    if (id == 0)
+		id = syn_name2id(term_get_highlight_name(term));
+	    if (id > 0)
+		syn_id2cterm_bg(id, &cterm_fg, &cterm_bg);
+	    if (fg == 0 && cterm_fg >= 0)
+		fg = cterm_fg + 1;
+	    if (bg == 0 && cterm_bg >= 0)
+		bg = cterm_bg + 1;
 	}
 
 	// with 8 colors set the bold attribute to get a bright foreground
@@ -4041,8 +3998,9 @@
 #endif
     if (id != 0 && t_colors >= 16)
     {
-	int cterm_fg = get_default_cterm_fg(term);
-	int cterm_bg = get_default_cterm_bg(term);
+	int cterm_fg = -1;
+	int cterm_bg = -1;
+	syn_id2cterm_bg(id, &cterm_fg, &cterm_bg);
 
 	if (cterm_fg >= 0)
 	    cterm_color2vterm(cterm_fg, fg);
diff --git a/src/version.c b/src/version.c
index f7af2d7..dfe5139 100644
--- a/src/version.c
+++ b/src/version.c
@@ -758,6 +758,8 @@
 static int included_patches[] =
 {   /* Add new patch number below this line */
 /**/
+    3516,
+/**/
     3515,
 /**/
     3514,