Understanding a Mortgage Acceleration Clause

Do you know if your mortgage has an acceleration clause? Have you ever even heard of an acceleration clause? If not, then don't worry; most homeowners pay off their entire mortgage without ever having to worry about this particular part of their loan agreement. During these times of Covid-19 and the resulting issues due to the pandemic then you may become more familiar with it than you want. It's still valuable to understand what this clause means, since it could result in your lender demanding immediate mortgage repayment under certain circumstances. In this post, you'll receive a brief introduction to acceleration clauses and why they are not something to joke about!

First of all, you're probably wondering whether your mortgage even has an acceleration clause (aka acceleration covenant). In short, the answer is "most likely". The vast majority of mortgage lenders include the clause as part of their standard agreement.

This particular clause is included in most large loans in order to protect the lender from risk. Essentially, if the borrower fails to adhere to certain conditions stated within the mortgage, the lender has the option of activating the acceleration clause in order to demand immediate and complete loan repayment. The most common reason for activating this clause is a failure to make one or more monthly payments, but it can also be triggered by failure to maintain home insurance, failure to pay property taxes, or an attempt to sell or transfer the property without lender approval. 

Once the clause becomes active, there are three different potential outcomes. In cases where the borrower can afford to pay off the remainder of the mortgage, they will now own the property outright and be relieved of additional interest payments. However, if you were already struggling to make the monthly payments, chances are high that you will be unable to come up with several tens or hundreds of thousands of dollars in the near future. In this case, you must either convince your lender to allow you to fix the initial problem or you must enter foreclosure, the process where the lender takes possession of your property.

If you receive a letter from your lender saying that they have invoked the acceleration clause, then don't panic! Instead, work with them to fix the issue and continue loan repayment. Sometimes, lenders will even be willing to restructure your mortgage in order to reduce your future payments, thereby reducing the risk of default. It will also be helpful to you to investigate any ways that the government or social service agencies are willing to help with your mortgage if you face any hardships from the pandemic.