Finance
What is the purpose of a 'due-on-sale' clause in a mortgage?
ARequires the borrower to pay property taxes when due
BRequires the full loan balance to be paid if the property is sold or transferred✓ Correct
CLimits the interest rate increase on an adjustable-rate mortgage
DRequires the borrower to maintain the property in good condition
Explanation
A due-on-sale (acceleration) clause requires the entire mortgage balance to become immediately due and payable when the property is sold or transferred without lender approval. This prevents buyers from assuming existing mortgages without lender consent.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Short SaleA sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Math Concepts
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