What is an acceleration clause?

If you miss payments, you may be required to pay off your mortgage early

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We all know paying your mortgage on time is important. But you might not know how big of a deal it could be to miss a single payment.

Most mortgage loans include an acceleration clause, which could make the entirety of your loan balance come due immediately in specific circumstances. If your lender enacts this clause, it could become a financial disaster.

But you don’t need to fear mortgage acceleration clauses as long as you know how they work (and how to avoid them). We’ll review the details of mortgage acceleration clauses, how they work, what actions (or inactions) could trigger them and what to do if your lender enacts the acceleration clause on your mortgage.

Key insights

  • A mortgage acceleration clause can be invoked to force repayment of your entire mortgage loan immediately.
  • Acceleration clauses are built into loans to protect lenders from the risks of loan defaults.
  • You can avoid loan acceleration by making on-time mortgage payments and keeping your homeowner’s insurance up to date.
  • Once the lender invokes an acceleration clause, you may be able to avoid repaying the entire loan by working directly with your lender on an alternative option (such as loan forbearance or modification).

Understanding the mortgage accelerator clause

An acceleration clause (as the name implies) accelerates loan repayment, forcing a homeowner to pay the entire remaining mortgage balance (plus any owed interest) immediately. Because home mortgages are sizable loans, most lenders include an acceleration clause in a loan to lessen the risk of loan default.

Lenders can invoke acceleration clauses for several reasons, including missed payments. If you fail to make one (or, more commonly, several payments), your lender can send you an acceleration letter, invoking the clause to demand immediate and full repayment of your mortgage loan.

“Upon an acceleration clause enactment, the debtor is expected to make a payment of all the gathered outstanding balance of the mortgage within a short time,” said Mikayla Reynolds, a real estate investor and founder of Cash Offers, which buys homes across the U.S. “However, when a debtor is unable to fulfill the commitment, the lender may initiate the foreclosure procedure of eventually the property that was pledged as the guarantee to repay the loan.”

If you fail to pay the mortgage balance after a certain number of days (typically 30 days or so after receiving your acceleration letter), your lender can begin the foreclosure process.

But don’t worry. There are actions you can take besides paying off your mortgage to avoid foreclosure.

If you do choose to pay off your mortgage loan, it functions the same as an early mortgage payoff. You’ll no longer owe anything to the lender and will receive clear title to your home.

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When does the acceleration clause apply?

The lender can invoke mortgage acceleration clauses for several reasons. These include:

Missed payments: If you miss a mortgage payment, it may trigger the acceleration clause. There are usually grace periods for most loans, with some offering up to 15 days to make a payment after the due date. And some mortgages don’t invoke the acceleration clauses until after multiple missed payments.

Nonpayment of property taxes: If you fail to pay your property taxes, the local government can put a lien on your home. This puts your lender in second position as a lienholder on your home, and it may invoke the acceleration clause to reduce the risk of not being able to fully collect on your mortgage.

Canceled homeowner’s insurance: Most mortgages require holding a valid homeowners insurance policy to protect you and the lender in case of fire or other issues. If you cancel or lapse on a policy, your lender may invoke the acceleration clause.

Unauthorized property transfer: If you transfer the ownership of the home or sell it without informing your lender or paying off the existing loan, the lender may invoke the acceleration clause.

Bankruptcy: A lender may include bankruptcy as a possible reason for invoking acceleration, allowing it to demand full repayment if you decide to file.

What to do if an acceleration clause is invoked

If your lender sends you an acceleration lender, don’t panic. There are several ways to avoid having to fork over hundreds of thousands of dollars. Below are some strategies to consider if your acceleration clause is invoked.

Ask for a loan modification

If you can’t afford your monthly payments, you might be able to get a loan modification. If your lender approves, it modifies your mortgage agreement to make payments more affordable, such as by lowering the interest rate or extending the loan term.

Loan modifications are cheaper than refinancing and keep your existing loan in place. Plus, the process is much simpler than applying for a new loan.

Ask for a temporary pause on payments

If you’re experiencing a temporary hardship, you can ask your lender for a temporary pause on your mortgage payments. This process, known as forbearance, can help avoid the acceleration clause and protect your credit, as missed payments may not be reported to credit bureaus, depending on the lender.

If loan forbearance is approved, you’ll still need to resume payments eventually. Plus, you’re still likely to be charged interest on those missed payments, which will get added to your loan, ultimately costing you more in the long run.

Refinance your mortgage

If you receive an acceleration letter on your current mortgage, you may be able to refinance the loan to pay it off. This resolves the mortgage payoff requirement and may be able to get you better loan terms overall.

This may not be an option if you’ve missed payments, as it may already have impacted your credit score, and lenders may not be willing to give you a loan. But it may be worth a shot if you have some home equity and your credit is still in good shape.

Attempt a short sale

If you can’t afford to pay off your mortgage but want to settle it without going into debt, a short sale may be a good option. A short sale allows you to sell your home and pay off your mortgage for less than what you owe. Lenders typically only approve a short sale if the home is worth less than you currently owe on the mortgage.

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How to avoid an acceleration clause

To avoid the acceleration clause, you simply need to always make on-time mortgage payments. Setting up automatic withdrawals from your bank account on the payment due date is probably the best way to ensure you never miss a payment.

If you anticipate missing a mortgage payment, contact your lender as soon as possible. Good communication can go a long way in avoiding acceleration. Humans work for lenders, after all, and have tools that may help you avoid losing your home and ruining your credit.

Find a way to negotiate a payment plan to catch up on your missed mortgage payments or negotiate forbearance to avoid the acceleration clause. Working with your lender to find a solution is a much better option than avoiding it and getting the dreaded acceleration letter in the mail.

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    Can I stop the mortgage acceleration clause?

    Yes, you may be able to work with your lender to stop acceleration. Whether you ask for forbearance or negotiate a loan modification, it’s best to start a conversation with your lender as soon as possible to avoid the repercussions of a mortgage acceleration clause.

    How many payments can I miss on my mortgage?

    Even missing one mortgage payment could invoke an acceleration clause. However, lenders generally have to wait 120 days after you miss a payment to start the legal foreclosure process. Make sure to review your loan documents or talk to your lender if you anticipate missing any mortgage payments.

    What is a mortgage accelerator loan?

    A mortgage accelerator loan is a financial product that promotes faster mortgage payoff, saving you interest charges. These programs use either a home equity line of credit (HELOC) or biweekly mortgage payments. Most homeowners can pay off home loans quicker without a mortgage accelerator loan program by making extra principal payments throughout the year.

    Bottom line

    If you own a home with a mortgage, chances are your home loan has an acceleration clause. It’s a good idea to chat with your lender to understand the terms of the acceleration clause so you don’t risk it coming into force. And if you’re looking to apply for a mortgage anytime soon, make sure to understand the acceleration clause with your lender before signing on the dotted line.

    The most important step you can take to avoid your lender invoking the acceleration clause is to always make on-time mortgage payments.

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Cornell Law School Legal Information Institute, “acceleration clause.” Accessed Feb. 24, 2024.
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