Mortgage agreements often include an acceleration clause, which allows the lender to demand payment of the outstanding balance of the loan under certain circumstances. The clause can include terms such as prohibiting the resale of the property without the lender’s permission and outlining consequences for late or non-payment. It is important for borrowers to review and understand the acceleration clause before signing the agreement.
When a mortgage is used to purchase a new home or property, there is a good chance that the mortgage agreement will include an acceleration clause. Essentially, the acceleration clause is a statement or series of statements within the mortgage contract that describes a series of reasons that will allow the lender to demand payment of the outstanding balance of the loan. Here are some basics about the acceleration clause and how the inclusion of the clause can help protect the lender in the event of a number of scenarios.
Acceleration clauses help define the terms of the loan agreement. There are a number of terms that can be included in an acceleration clause. For example, loan agreements may prohibit the buyer from reselling the property without the express permission of the lender. This ensures that the lender can secure payment of the outstanding balance should the borrower wish to end the business relationship. Another example of terms commonly found in an acceleration clause is the collateral provision used to secure the loan. The prohibition on the sale of collateral for the life of the loan also helps to ensure that there are some sort of assets to collect in case the borrower defaults in some way.
The acceleration clause can also be used to spell out some of the common loan compliance terms, while also outlining the consequences that will result if the terms are not met. As an example, the acceleration clause may specify the due date for payments, and also include a list of steps the lender will take to penalize the borrower for late or non-payment. This may include applying a fixed amount if the payment is not paid within a specified time after the due date, until the loan is terminated and payment in full is demanded.
Before signing any type of loan or mortgage agreement, it is always a good idea to review the agreement and read all the points covered in the acceleration clause. While most agreements contain very reasonable terms within the acceleration clause, it is important for the borrower to check any points that may be a problem in the future. Failure to read the document before signing will not relieve the borrower of the responsibility to comply with the acceleration clause or to deal with the recourse terms that are granted to the lender.
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