What is the purpose of an acceleration clause in a mortgage?

The purpose of an acceleration clause in a mortgage is to ensure immediate repayment of the entire debt upon default. This clause protects the lender by allowing them to demand the full balance of the loan if the borrower fails to meet the terms of the mortgage, such as making timely payments. When a borrower defaults, the lender can invoke the acceleration clause, which triggers the obligation for the borrower to repay the entire amount owed immediately rather than continuing on the original payment schedule. This mechanism serves to reduce the lender's risk by providing a clear course of action in the event of a default.

The other options do not accurately reflect the role of an acceleration clause. For instance, a reduction in interest rates pertains to other mortgage terms or special refinancing options, and postponing payments would generally relate to forbearance agreements rather than an acceleration clause. Likewise, converting a loan into a fixed-rate mortgage involves a different type of agreement and is not tied to the implications of default or repayment.