Contracts
An acceleration clause in a mortgage allows the lender to:
AIncrease the interest rate if the borrower's credit score declines
BDemand full repayment of the remaining loan balance upon default✓ Correct
CSpeed up the amortization schedule to build equity faster
DAccelerate the closing date in refinancing
Explanation
An acceleration clause allows the lender to declare the entire remaining loan balance immediately due and payable upon the borrower's default or other triggering events. Without this clause, the lender could only sue for individual missed payments.
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Key Terms to Know
Amortization
The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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