What is the Acceleration Clause?

what is the acceleration clause

Acceleration clause in a mortgage definition

If you are a new homeowner with a real estate loan, you may want to review your loan agreement to see whether it contains an acceleration clause. Chances are, your contract includes an acceleration clause. Lenders often include this clause in your agreement to protect their funds and ensure that they’ll recover their investment one way or another. Thus, when a borrower misses payments, the lender can automatically invoke the clause to claim their money.

Also known as an Acceleration Covenant, an acceleration clause can vary in nature and have different triggers, depending on your mortgage agreement. An acceleration clause is a provision that enables any lender to require the borrower to reimburse their outstanding loan when requirements aren’t met. The acceleration clause clearly outlines why the lender can demand immediate repayment, so be aware of those items. You can trigger an acceleration clause at any time without being careful. Sometimes, the clause will only require the borrower to cover the missed payment, but most often, the clause demands that the borrower pays the outstanding balance on your home loan in a large lump sum.

The problem homeowners face is that these clauses are often unaffordable. If the homeowner is unable to pay your accelerated balance, borrowers can face foreclosure on their property. The clause’s primary purpose is to protect the lender by returning the lender to their previous position prior to the borrower default. While it’s not necessarily a legal punishment for the borrower, it places them in an unfortunate and stressful situation. Therefore, the borrower must always act prudently to avoid triggering the acceleration clause.

Here’s what home buyers and owners need to know about the acceleration clause, including the triggers and how to keep away from this dreadful scenario.


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What Triggers the Acceleration Clause?

Depending on the loan type, different things may trigger the acceleration clause. If your contract contains this clause, make sure you understand all the terms associated with your agreement. Once you’re aware of the specific triggers in your acceleration clause, it’s relatively easy to avoid them.

An acceleration clause is often based on payment delinquency. However, the number of missed payments may vary. Some acceleration clauses may invoke immediate repayment after one missed payment, while others may allow up to three before demanding the loan to be repaid in full. Apart from default or consistent late charges, you can trigger an acceleration clause when the borrower attempts to sell or transfer the property to a third party. This is also known as the due on transfer clause.

When borrowers face an accelerated repayment, borrowers must repay the whole loan amount rather than repaying it over 15 or 30 years as planned. Banks may trigger the clause more efficiently to ensure their loans are secure, while private lenders may leave some contingency. What triggers the lender may depend on their level of comfort or specific triggers unique to their institution.

As mentioned previously, the exact terms for an acceleration clause will vary from one contract to another. Acceleration clauses aren’t automatically triggered and are left at the discretion of the lender. Apart from default or consistent late payments, an acceleration clause can be activated in the event of financial insolvency, falling behind on property taxes, or a breach of contract. Failure to obtain home insurance or make on-time payments is also critical in whether the acceleration close is evoked.

If you adhere religiously to your financial contract by paying your bills on time, you will avoid triggering the acceleration clause.


Acceleration of payment clause

An acceleration clause is a loan contraction provision that gives your lender the right to demand full repayment under specific conditions.

Notification from your lender that the acceleration clause is in effect is often the first step towards foreclosure. Generally, a letter will arrive to inform the borrower that the lender has triggered the acceleration clause, the amount due, and for which reason.

You become instantly responsible for paying the remaining principal on your loan, plus the interest accrued to date. The letter includes the date where the payment is due, which is typically 30 days from receipt.

If you can’t pay, the lender can proceed to foreclose on your property and recoup its cost by assuming the ownership of your home. It’s important to understand that even if your mortgage is accelerated, you can still avoid foreclosure.

Commonly, real estate lenders don’t want to deal with a property fallen into a state of foreclosure. Lenders would prefer to settle the debt than go through the foreclosure process; it doesn’t make money that way. Thus, they may allow a loan modification or alternative repayment plan to continue working together so that you can continue to own the property.

Sometimes, your lender can restructure your loan, making your payments smaller to make them affordable. However, the borrower may be held liable to pay off any additional costs incurred by the lender by motioning the original acceleration clause.

Though easily avoidable, it’s crucial to understand an acceleration clause and whether your loan contains one. It’s essential to communicate with your lender if you’re concerned about missing a payment on your loan.

It’s always best to reach out to your lender before they invoke the acceleration clause.  Awareness is the best way to avoid breaching your financial agreement and being forced to repay your loan in full or give up your property.



Legal Information Institute – Cornell Law School (n.d.) Acceleration Clause

Wikipedia (May 6th, 2021). Acceleration clause

Corporate Finance Institute (n.d.) What is an Acceleration Clause?


Contact the Cain mortgage Team to answer any of your Acceleration Clause questions and concerns.