Difficulty: Medium

Average Score: 67%

Which of the following is a provision of the acceleration clause of a mortgage

Rationale

The lender may demand immediate payment of the balance owed if the borrower misses any payment.

The acceleration clause in a mortgage allows the lender to require the borrower to pay the entire outstanding balance if a payment is missed, thus protecting the lender's interests in the event of default.

A (When a payment is made, interest is paid first, and the balance is applied to the principal) YOUR ANSWER

This statement describes a common practice in loan repayment known as amortization, where interest is calculated first and the remainder goes toward the principal. However, this practice does not relate to the acceleration clause, which specifically pertains to the lender's right to demand full repayment upon default.

B (The lender may demand immediate payment of the balance owed if the borrower misses any payment) CORRECT

This is the essence of the acceleration clause, which serves as a protective measure for lenders. When a borrower defaults by missing a payment, the lender can invoke this clause to accelerate the loan, demanding full payment of the remaining balance to mitigate losses.

C (The borrower may pay more than the required monthly payment without penalty) YOUR ANSWER

While borrowers often have the option to make extra payments toward their mortgage to reduce principal more quickly, this feature is not related to the acceleration clause. It pertains more to the loan's terms rather than the consequences of missed payments.

D (The lender may adjust payments up or down to cover certain contingencies) YOUR ANSWER

This option suggests a flexibility in payment amounts that is not typical of an acceleration clause. Adjusting payments usually relates to variable-rate loans or specific agreements but does not align with the enforcement of an acceleration clause triggered by missed payments.

Conclusion

The acceleration clause is a critical provision in mortgage agreements, empowering lenders to demand immediate repayment of the entire loan balance if the borrower defaults on payments. While other options describe aspects of mortgage payments or borrower rights, only option B accurately reflects the purpose and function of the acceleration clause, highlighting its role in protecting lender interests during borrower default.

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