Acceleration Clause – What is it and How Does it Affect Your Mortgage?

Acceleration Clause – What is it and How Does it Affect Your Mortgage?

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Acceleration ClauseMost people haven’t heard of an acceleration clause on a mortgage. This can be a problem since the majority of all mortgages have them in place. It’s important to understand what it is because if it goes into effect on your mortgage you could find yourself in a heap of trouble.

What is the acceleration clause?

The acceleration clause states that if you break any of the terms of your mortgage then your payment will be accelerated. That means that it will be due immediately.

This is a problem for almost all homeowners who don’t simply have cash on hand to pay the balance of their mortgage at a moment’s notice.

The majority of standard mortgages have this clause included in the agreement. It’s reported that as many as 90 percent of Fannie Mae loans have this clause in place.

But, don’t think you are off the hook if you don’t have a standard mortgage through Fannie Mae. Most lenders have some type of clause in place that is similar to this one.

If you stick to the terms of your mortgage and make your monthly payment on time month after month you will never have to worry about the clause. However, if you violate the terms you could find yourself with a large bill in the mail.

What puts the clause into play?

The most obvious reason for the clause going into effect is missed mortgage payments. When you are missing mortgage payments the mortgage company is going to try to collect the entire balance of the loan from you before moving it to the foreclosure process.

However, missed payments aren’t the only thing that triggers the clause. It can also happen due to failing to have homeowner’s insurance on the property, skipping out on your property taxes, trying to transfer the title of the property without approval, or letting your house get to unlivable conditions.

How the clause works

When the clause has been triggered it will start with a letter from the lender. They will notify you of what is happening and provide you with the instructions and deadline. This is usually 30 days to make your full payment.

If you are unable to make the payment, the lender will move you into the foreclosure process. Your lender doesn’t have to use this clause before moving you to the foreclosure process, but they often will to provide you with a last chance to rectify the situation.

Can you avoid it once it starts?

The good news is just because you receive the letter does not mean that your only two choices are pay off the loan or lose your house. Depending on what your situation is, your lender may be willing to work with you to correct the situation.

This could be as simple as reinstating your homeowner’s insurance or paying the money you owe on past due payments and interest. Your first step needs to be to contact your lender to find out your options.

These types of clauses are in place to protect the lender. But, it doesn’t mean that the lender is just waiting for the opportunity to put them into place. They would prefer that you stick to the terms of your contract so they don’t have to use this clause or foreclose on your home.

If you have found yourself in a bind or know that there is a term that you are struggling with on your contract then contact your mortgage lender to discuss options. The sooner you do it the more options you have.

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