Acceleration & Renegotiable Rate Clause

In every mortgage loan there are several clauses that state the rights of the mortgagor and the mortgagee during the tenn of the mortgage loan agreement. The various clauses (or provisions) that may be found in the debt agreement are as follows:

Acceleration clause

Lenders usually insist that the instrument contain an acceleration clause that makes the entire debt due in the event of default. This clause precludes the necessity for the lender to bring separate lawsuits against the same mortgagor for each late payment. This clause usually states that if any covenants are breached, including the obligation to pay the sums secured by the mortgage when due, then the full amount is due immediately. This declaration of full payment due is at the option of the lender.

Renegotiable rate clause

A renegotiable rate mortgage (RRM) is a series of short-term loans secured by a long-term mortgage. The short-term loans are automatically renewable at equal intervals of three to five years each. The mortgage term may not exceed 40 years. The monthly payments are made in equal installments. However, at the end of the life of each short-term loan, the interest rate may be
changed. Changes are based on the movement of an index such as the Federal Home Loan Bank Board’s most recent monthly national average contract mortgage rate index. The interest rate is the only term-that may be altered. An interest rate.modification results in a change of the monthly payment. The new payment amount remains stable until the loan term has again expired.