Introduction to Acceleration Clause
What ends up happening when you buy a house is, you know that you get a mortgage where you sign tons of documents and honestly not many borrowers get time to read all the fine print.
In one of the fine prints, you will find an acceleration clause. In this post, we will understand what an acceleration clause is in a mortgage.
What is an Acceleration Clause in a Mortgage?
The acceleration clause means that after the borrower gets a mortgage, the lender has a complete right to demand full payment of the remaining mortgage balance within 60 days or less if there are certain regulations that were mentioned in the contract that were not followed by the borrower.
What Causes Mortgage Acceleration Clause?
The mortgage acceleration clause can be in effect if the borrower breaks any term of their mortgage the lender can demand and accelerate mortgage payments.
In other words, rather than paying off the loan monthly over 15 to 30 years in a typical mortgage, the whole amount is due instantly.
There are many clauses that a lender can demand the mortgage acceleration.
The most common clause of course would be a lack of paying off the loan. However, there are some unconditional triggers as well.
Maybe not keeping current with the home insurance, maybe not paying property taxes, or even some drastic situations failing to keep the home in a good condition.
The lender may also accelerate mortgage payments if the borrower tries to transfer the property ownership to someone else without the lender’s approval.
If the borrower is unable to make the accelerated payment the lender will proceed to the next step which is foreclosure.
Can a Lender Revoke Mortgage Acceleration Clause?
The answer to that question is yes. There are many links when it comes to the lender revoking acceleration clause.
In some cases, the lender might revoke the acceleration clause which was earlier triggered for a specific reason.
This is called ‘deceleration’ all the mortgage terms will be reinstated and the borrower can continue to make regular monthly payments like he was making before the acceleration clause was triggered.
The lender might revoke the mortgage acceleration in case that analyze that if the borrower makes the accelerated payment in full, the borrower is not liable to pay the interest that he would otherwise have to pay for the complete loan tenure.
So to save the loss of interest amount the mender may decide to revoke the mortgage acceleration clause.
Conclusion
The best part is, borrowers mostly are to stay away from acceleration by working out modification of loan or some repayment plan with their banks to cover their missed payments through reinstatement.
However, there is a possibility that the borrower might have to incur some or all of the cost that lender had to invest while in the process of acceleration.
In most cases, the lenders won’t be going for a mortgage acceleration clause. This contract is only used by the lender as a backup plan in case the borrower is not able to honor the guidelines.
Going for an acceleration clause is not cost-effective for the lender as well, so even they will try to work around things as much as they can.
Being said that, the fact is that a mortgage acceleration clause exists and you as a borrower have signed to accept the terms of this clause when you got your mortgage.
This means the chances of the lender triggering the acceleration clause are low but still there if the borrower is not meeting the terms guidelines.
Since many borrowers are unaware of the acceleration clause, it is suggested that you read the terms of the mortgage acceleration clause carefully before you close on the loan.
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