Acceleration clause
A clause in a written mortgage, note, bond, or conditional sales contract that, in the case of default, allows the entire principal and interest to become immediately due and payable.
The “acceleration” is in the payment schedule, as it makes the full amount due at once rather than over the original term.
The most common trigger for an acceleration clause is default on loan payments, typically after a specified number of missed payments. However, acceleration clauses may also be activated by:
- Sale or transfer of the property without the lender’s permission (due-on-sale clause)
- Failure to maintain property insurance
- Failure to pay property taxes
- Bankruptcy filing
- Violation of other key loan covenants
When an acceleration clause is invoked, the borrower generally has limited options, including paying the full balance immediately, refinancing the loan, selling the property, or staring down the almighty foreclosure.
Acceleration clauses are standard in most mortgage contracts and serve to protect the lender’s interests (usually a bank) by ensuring they have recourse if the borrower fails to meet their obligations.