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What is an acceleration clause?

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Quick Answer

An acceleration clause is a term in a loan agreement that requires the borrower to pay off the loan immediately when certain conditions occur, according to Cornell University Law School. For instance, most home mortgage loans include an acceleration clause that activates if the borrower misses too many payments.

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Full Answer

Acceleration clauses typically appear in residential and commercial mortgages, and they sometimes appear in leases. When a lender invokes an acceleration clause due to a contract breach, the borrower is required to immediately pay the remaining balance of the principal on the loan and any accumulated interest, notes Cornell University. However, the borrower is not required to pay the full amount of interest that would have been due had the loan been paid normally.

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