It’s always advisable to read every part of your mortgage contract to ensure you know what you’re getting into.
If you’re new to mortgage loans, you might come across a few unfamiliar terms like “acceleration clause.” Acceleration clauses are found in most loan contracts but are more familiar with mortgage loans.
Like most people, you may come across this clause and brush it off as unimportant. Big mistake! It’s always advisable to read every part of your mortgage contract to ensure you know what you’re getting into. This article will look at an acceleration clause and what it means for both the lender and borrower.
Acceleration Clause: The Definition
An acceleration clause in your mortgage contract stipulates specific loan repayment provisions for the borrower. It allows the lender to demand outstanding mortgage repayment prematurely if the borrower doesn’t meet certain conditions. The acceleration clause will state the said conditions and how much the lender expects from the borrower if they fail to fulfill them.
What Situations Merit an Acceleration Clause?
Not all mortgage loans have acceleration clauses, but most do. Lenders trigger acceleration clauses for various reasons and the mutual benefit of both parties. Here are a couple of situations that can trigger the acceleration clause.
- Delayed or Missed Payments – Repeated missed payments may force the lender to effectuate an acceleration clause. Thankfully, making full mortgage payments before can reverse the process. It would be wise to follow up on any missed payments before the lender invokes an acceleration clause.
- Canceling Homeowner’s Insurance – Most mortgage lenders require borrowers to have comprehensive homeowner’s insurance throughout the mortgage lifespan. Homeowner’s insurance protects the lender’s collateral if you fail to repay the mortgage. The lender can initiate an acceleration clause if you cancel your homeowner’s insurance because it means their collateral is no longer protected.
- Filing for Bankruptcy – Filing for bankruptcy means you’re no longer in a position to pay off your mortgage. Lenders will enforce an acceleration clause to ensure you pay off your outstanding mortgage before filing for bankruptcy. That way, they can protect themselves from any defaulting or delinquency on the borrower’s part.
- Transferring Your Property Illegally – Illegally transferring your property to a person or entity could trigger an acceleration clause. The lender might perceive this as trying to evade the mortgage by relinquishing ownership. Lenders have the right to enforce an acceleration clause in cases of unauthorized property transfer.
Are Acceleration Clauses Legal?
Yes, acceleration clauses are perfectly legal and are invoked to protect the lenders’ interests. It also saves the lender the trouble of suing the borrower every month for delayed payments.
Make Timely Payment to Sidestep Acceleration Clause Invocations
An acceleration clause may sound a tad scary for mortgage borrowers, but it’s nothing to worry about if you make timely mortgage payments. Also, ensure you get your mortgage from a reputable lender to avoid illegal acceleration clauses.
Contact The Sean Zalmanoff Mortgage Team today so that we can get started on your mortgage process.
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