What is an acceleration clause in a mortgage?

What is an acceleration clause in a mortgage?

If you've gone through the process of purchasing a home, you know how much work and effort is involved to make sure that everything is legally sound and in your best interest. The paperwork itself can be pretty annoying to go through, but you need to make sure you understand the major provisions of your contract. For example, do you know what an acceleration clause is?

An acceleration clause is a sneaky little provision that allows a lender to demand the entire remaining balance if you miss one of your monthly payments! The lender may also have the right to require full payment if you violate any other terms in your mortgage agreement. Also, if you sell the property, you will likely have to pay off your mortgage balance immediately, and this is known as a due on sale clause.

In practice, the lender may be more flexible, since most people would be unable to pay off this remaining balance all at once. This would simply lead you into serious financial trouble and you would end up losing the home and making things more difficult for the mortgage lender. Nevertheless, you should be aware of the legal technicalities and do your best to avoid missing a monthly payment.

Speaking of monthly mortgage payments, you also need to be aware of the possible changes to your monthly payments when you take out an adjustable rate mortgage. Adjustable rate mortgages attract many people because they start out with a lower interest rate than a fixed mortgage loan. However, the interest rate will change over time in response to market conditions.

You need to pay attention to several provisions in your mortgage, including the maximum interest rate and maximum payment. This will help you understand what your monthly payment would be in the worst case scenario. If you're not comfortable with this potential amount, you should reconsider obtaining the mortgage to begin with. We do not recommend signing up for an adjustable rate mortgage that does not have a maximum interest rate or maximum monthly payment.

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