Mortgage acceleration clauses can cause a shock for people who have fallen on hard times and missed several payments. They can also creep up on homeowners who have made a mistake as simple as letting their homeowner's insurance lapse.
However, mortgage acceleration clauses are written plainly in lending contracts. Don’t fear acceleration clauses. We’ve got answers to the most common questions regarding these aspects of mortgages.
Top FAQs About Mortgage Acceleration Clauses in Real Estate
What is acceleration in real estate?
Acceleration in real estate is a clause of contractual agreements made between the borrower and the lender. The clause is invoked as a last resort by lenders if the borrower fails to resolve past due payments, causes severe property damage, or breaches other specific conditions of the contract.
When acceleration is triggered, the lender will require the remaining amount of the mortgage be paid in full by a specific date. If the borrower fails to do so, foreclosure proceedings will likely follow.
What is the difference between an acceleration clause and a due on sale clause?
A due on sale clause protects the lender from losing out on rising interest rates. If you are selling your home to a new buyer and pass the loan along with the sale, this may be disadvantageous for the lender if interest rates have been raised since the mortgage was taken out.
This is where the due on sale clause comes in. It will require you to repay the loan in full when selling your home. The lender will see the advantages of higher interest rates by being able to rearrange the loan with the new homeowner.
What does mortgage acceleration mean?
Not to be confused with an acceleration clause, mortgage acceleration means that you make mortgage payments at an increased frequency that exceeds the terms agreed upon.
This way, you will save interest by diminishing the time frame during which interest compounds. It’s a great way to cut down on interest costs and save a lot of money over time.
What is notice of intent to accelerate?
A borrower may receive a letter of intent to accelerate from their lender when a mortgage loan is in default. The notice will likely give the borrower a number of days to resolve the issue before the borrower will proceed with foreclosure.
It’s a warning of the possible consequences if the borrower does not pay all missed payments and late fees before proceeding with acceleration and foreclosure proceedings. If you receive such notice you should not waste any time.
Immediately establishing contact and documenting an intent to resolve the issue will be important. The lender may have other options for you that won’t lead to outcomes that are as devastating.
What triggers an acceleration clause in a loan agreement?
When a borrower breaches any of the contract terms, the lender may choose to invoke the acceleration clause.
Breaches that may trigger an acceleration clause include instances when a borrower does not have or has not updated their home insurance, is not paying property taxes, fails to maintain the property to liveable standards, or if the borrower attempts to transfer the property without the lender’s approval.
What is a mortgage acceleration letter?
A mortgage acceleration letter, unlike a notice of intent to accelerate, means that the lender is not giving you a time period in which you can resolve issues and is invoking the acceleration clause immediately.
The entire outstanding amount is due by the lender’s chosen date, and if it is not paid in full by then the lender will accelerate the entire amount of the mortgage. Failing to reach an agreement with the lender will lead to foreclosure. This letter is sent usually after two or three months of a borrower’s loan is in default.
How do you write an acceleration clause?
Acceleration clauses are typically written into mortgage loan agreements. They provide the lender with a course of action if the borrower repeatedly fails to make payments on time.
Acceleration clauses are written into contracts by lawyers or individual lenders. Typically the languaged used contains the phrase “default payment” followed by whatever measures the lender will take in that event.
A Clever Partner Agent can help to answer any questions that you may have regarding mortgage acceleration clauses. A Partner Agent can also help you to sell your home after triggering any mortgage acceleration clause in your contract. Get connected with a Partner Agent today.