Friday, September 30, 2011

Mortgage Acceleration Clause

What is an Acceleration Clause?

Ontario Real Estate Source

By Brian Madigan LL.B., Broker

This is a clause in a mortgage which triggers the obligation to repay the entire principal sum outstanding in advance of the time that it is otherwise due.

Consider a borrower who pays $1,200 per month on his $135,000 mortgage. The mortgage runs for five years. If he breaches an important covenant contained in the mortgage like for example failing to provide insurance, the entire $135,000 is due and owing, even if it is just year one in the mortgage.

Some breaches are considered substantial enough to “accelerate” the principal.

This is an option available to the mortgagee (lender). But, in cases, where the rate of interest is high the borrower may wish to have the mortgagee activate this clause which provides the opportunity to pay earlier.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888