May 27th, 2018 10:12 AM by Jackie A. Graves, President
is an acceleration clause? If you have a mortgage,
odds are your contract includes an acceleration clause. It basically
means that if you break any terms of your loan, your lender can demand
"accelerated" payment. In other words, rather than paying that
money back over 15 or 30 years as planned, the whole amount is due immediately.
stressful? Here's what home buyers and owners should know about a mortgage
acceleration clause, including what triggers it and how to keep this scary
scenario from happening.
acceleration clause is a part of the standard mortgage agreement used by Fannie Mae, a contract used in 80% to 90% of residential
mortgages, explains Adam Sherwin of
the Sherwin Law Firm, in Somerville, MA. And even if your mortgage is
not backed by Fannie Mae, most lenders have some form of an acceleration
clause in place.
adhere to your mortgage contract by paying your monthly bill on time and
otherwise, you will avoid ever triggering this acceleration
clause. But if you violate any of your contract's terms, watch out.
any terms of the loan agreement are not met, the mortgage note holder has the
right to call the note," explains Ralph DiBugnara,
a vice president at Residential Home Funding.
It's time to pay up!
common reason lenders accelerate a mortgage is because a borrower has failed to
make monthly mortgage payments. But most mortgages also allow acceleration if
another part of the contract is breached. Other common covenants that
could trigger acceleration include the following:
contract is different, so make sure to read yours carefully to know what could
trigger your acceleration clause.
letter will arrive informing a borrower that the lender has triggered the
acceleration clause. The letter will give the amount due, consisting of
the balance of the loan, plus interest on any missed payments. This letter will
also include the date by which you must pay up. Typically, that will be within
30 days of receiving the letter.
If you can't
pay, the lender will proceed to the next step: foreclosure, where the lender assumes
ownership of your home in an attempt to recoup its costs.
doesn't have to
accelerate your loan to foreclose on your home, explains Sherwin, but often it
will. "It's kind of a formality," he explains. "It's one
last chance to pay before the foreclosure process begins."
important to note that even if your mortgage is accelerated, you can still
avoid foreclosure," says Sherwin. "It doesn't mean that there's no
other option left."
can work with your lender to fix the problem and have your mortgage
reinstated. That could mean paying the missed payments (with interest) or
fixing whatever caused the lender to call the loan. Sometimes, your
lender will also restructure your loan, called loan modification, making
your payments smaller so that you can afford them.
servicer has their own specific guidelines for modification," says
Sherwin, but they may extend your loan's terms, reduce your interest rate, or
come up with a delayed repayment schedule that works for both parties.
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