provision in a conventional mortgage requiring payment of the unpaid loan balance if the property is sold. The mortgage cannot be transferred to another borrower (permitted in an assumable mortgage) without approval by the lender, and normally only at current market interest rates. The due-on-sale clause provides mortgage secondary market investors with a continuous supply of residential mortgages originated at market interest rates.
provision in a mortgage that states that the loan is due upon the sale of the property. Mortgage lenders sometimes waive this provision provided the interest rate is raised and the new owner qualifies for assumption of mortgage. Some state-chartered lenders are not allowed to enforce this clause.
clause in a mortgage contract requiring the borrower to pay off the full remaining principal outstanding on a mortgage when the mortgaged property is sold, transferred, or in any way encumbered. Due-on-sale clauses prevent the buyer of the property from assuming the mortgage loan.
a provision in a mortgage that states the loan is due upon the sale of the property.
Example: Collins owes on a $200,000 mortgage loan against her house at an 8% interest rate. She wants to sell the house to a buyer who will assume the mortgage. The lender says that the $200,000 loan is due upon the sale of the house so it cannot be assumed by the buyer. The lender adds that he will waive the due-on-sale provision if the interest rate is escalated to 10%.
