Question 82

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 any payment is missed. This provision protects the lender by enabling them to act quickly in the event of default.

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

This option describes a standard practice in loan amortization rather than an element of the acceleration clause. While it is true that interest is typically paid before the principal in loan payments, it does not relate to the acceleration of the loan.

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

This is the defining characteristic of the acceleration clause. It grants the lender the authority to call for the total loan amount due immediately upon the borrower’s failure to make scheduled payments, thereby protecting the lender's financial interests.

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

While many loans allow for extra payments, this option does not pertain to the acceleration clause. The ability to make additional payments is often a feature of the loan agreement but does not involve the lender's right to accelerate the loan.

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

This statement does not accurately reflect the acceleration clause. The acceleration clause specifically pertains to the lender's right to demand full repayment upon default rather than allowing for adjustments in payment amounts based on contingencies.

Conclusion

The acceleration clause is a critical component of mortgage agreements, allowing lenders to demand full repayment if the borrower defaults on any payment. Option B accurately encapsulates this provision, while the other options either describe standard loan practices or do not relate to the acceleration clause. Thus, B is the only correct answer that aligns with the function of the acceleration clause in a mortgage.