What Is an Acceleration Clause?

An acceleration clause, as the name suggests, is a provision in a mortgage contract that will cause the loan payments to be “accelerated” when triggered. For instance, a contract states that when a borrower defaults twice consecutively, the lender has the right to call the full payment of a loan immediately. This means the borrower must pay off the full mortgage amount immediately or sooner than the original end date.

The clause will outline any limitations and liabilities that the borrower should meet. Otherwise, the loan providers will push for the full repayment to happen sooner than what was specified in the loan terms.

Why is an acceleration clause added?

This is basically a contingency plan for a mortgage to not reach the point of default. When a borrower is delinquent on their payments, most lenders impose the acceleration clause to secure the original loan amount minus the additional interests.

The frequency of delinquent payments is not the same for every acceleration clause. This will solely depend on the discretion of the lender. Nonetheless, the number of late payments are among the many conditions that will still be stated in the clause.

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What happens after the acceleration clause is invoked?

When the loan provider invokes the clause, they contact the borrower and require them to repay the full amount. Failure to make payments will give the lender the rights to file legal charges against the borrower for the contract breach. They can/may foreclose and seize the estate to settle the outstanding balance of the borrower. If payment is made, the lenders will release the title to the borrower and they will be free from any legal obligation of the mortgage.

 

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