Acceleration Clause


Acceleration clauses are most common in mortgage loans and help to mitigate the risk of default for the lender. They are usually based on payment delinquencies but they can be structured for other occurrences as well. In most cases, an acceleration clause will require the borrower to immediately pay the full balance owed on the loan if terms have been breached. With full payment of the loan the borrower is relieved of any further interest payments and essentially pays off the loan early at the time the acceleration clause is invoked.

A lender may choose to include an acceleration clause to mitigate potential losses and have greater control over a real estate property tied to a mortgage loan. With an acceleration clause, a lender has greater ability to foreclose on a property and take possession of a home. This may be advantageous to the lender if the borrower defaults and the lender believes they can obtain value through a resale.

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