MDueonsale clause

Traditional common law permits a buyer to purchase mortgaged property and preserve the existing mortgage unless the mortgage contains a clause to accelerate the loan upon sale. This due-on-sale clause is especially important to lenders in a world of volatile interest rates. Without it, buyers tend to preserve low interest rate mortgages as long as possible by purchasing second mortgage financing rather than refinancing the existing loan.

The clauses discussed in this section are the principal variable provisions found in mortgages or notes. Other provisions that are sometimes used include equity participation and late payment clauses. Depending on the type of lender, each will usually have a standard form that outlines the rights of the lender and the borrower. All borrowers should carefully read these documents before signing. They may contain a clause that is detrimental to their particular needs.

Fortunately for home mortgages, the influence of secondaiy mortgage market agencies has in recent years encouraged the widespread use of a standard home mortgage contract. This document, promulgated by the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Association (FNMA), is well crafted to protect the interest of both mortgagor and mortgagee in the typical home loan situation.

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