What is an Acceleration Clause?

An acceleration clause is part of a mortgage agreement that gives the lender the right to demand the entire loan amount all at once. As a homeowner, you need to understand what a mortgage acceleration clause is so that you can do your best to avoid it. Here are the basics of an acceleration clause and how it works.

How They Work

An acceleration clause is called into play when a borrower fails to make his or her monthly payments. If a mortgage agreement contains an acceleration clause, the fine print of the mortgage documents will spell out when the lender will utilize it. The lender may be able to use the clause at its discretion, or the agreement may stipulate that the clause will be used after a certain number of missed payments. 

For example, let's say that your mortgage said that after two missed payments, the lender will utilize the acceleration clause. This means that after one missed payment, it will charge you a late fee. After two missed payments, the lender will utilize the acceleration clause. When this happens, the lender will send you a notice that the entire balance of the mortgage is now due and that it will foreclose upon the house if you do not pay the full balance immediately. 

When this happens, you have three options. You can pay the entire mortgage off, you can allow the lender to foreclose, or you can call the lender and attempt to work out a solution to the problem. 

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