What is an Acceleration Clause?

Nov 14, 2018Ask NAEBA

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.

Examples of When an Acceleration Clause Comes into Play

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?

An acceleration clause would be added as a contingency plan to ensure a mortgage doesn’t 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.

How quickly does the buyer need to pay the loan back?

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 payments is among the many conditions that will still be stated in the clause

When will the lender invoke the acceleration clause?

When a mortgage agreement is written, a client agrees to pay the loan off after a specified time, most commonly 30 years. During those 30 years, the client pays off the loan in monthly increments.

If the borrower misses a payment, they have broken the contract, and the lender can invoke the acceleration clause and begin the foreclosure process. Although unlikely, the lender can invoke the acceleration clause for other reasons. This includes not paying property taxes, not properly maintaining your property, or failing to pay or cancelling homeowner’s insurance.

However, acceleration clauses are not automatic. The lender must decide whether conditions have been met to begin the process. This is because foreclosure is a lengthy process and the lender loses money at the end of it.

Can you get out of an acceleration clause?

Typically, a borrower can avoid acceleration by working out a repayment plan with their lender to make up for the delinquent payments. This is called mortgage reinstatement. There are a variety of different options available for borrowers to get back to being current on their payments. A borrower may have to pay some or all the costs back to the lender that were associated with invoking the acceleration clause.

However, mortgage acceleration and foreclosure guidelines and requirements differ from state to state and by lender.

To know more about your specific situation, talk with your lender. You may also seek guidance from a NAEBA-registered Exclusive Buyer Agent who can work directly with your lender to make the process as stress-free and comfortable as possible.


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