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Acceleration Clause Most mortgage agreements contain acceleration clauses which come into effect when a lender exercises their rights to have the mortgage balance paid off straight away. This normally occurs when the borrower fails to make a payment or becomes bankrupt. It is a provision in the mortgage contract stating that the lender may demand the balance payable much earlier than previously arranged depending on the circumstances. This could mean that the borrower must pay the balance or risk losing the property and the amount paid already. When a borrower defaults on a loan, there may be a grace period that allows them to catch up on the payments but if they fail to do so then the lender has the right to demand immediate payment and begin foreclosure proceedings. Borrowers should be well aware of these facts when they sign a mortgage contract as they could potentially lose the money that they have previously invested into the mortgage due to this provision. Although some lenders may prolong the grace period or neglect to enforce the acceleration clause unless payment is unforeseeable, others will exercise their right to claim immediate payment without a lot of warning. More terms explained |
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