What clause allows a lender to call the entire mortgage balance due upon sale of a property?

The due-on-sale clause empowers a lender to demand full payment of the remaining balance on a mortgage when the property is sold. This clause serves to protect the lender's investment by ensuring that the property and its financing terms do not change without their consent. When a property with this clause is sold, the lender has the right to accelerate the loan, essentially requiring the borrower to pay off the mortgage immediately rather than allowing the new owner to assume the mortgage under the original terms.

The rationale for including a due-on-sale clause in a mortgage agreement comes from a lender's desire to maintain control over the terms of the loan and to evaluate the creditworthiness of any new buyers. If the property is sold, the lender may want to assess the new buyer's ability to take on the existing mortgage or adjust terms to reflect current market conditions.

Other clauses, such as the loan-to-value ratio clause, relate to the amount of debt as compared to the property value, while a prepayment penalty clause pertains to fees charged for paying off a loan early. An equity clause generally relates to the borrower's rights concerning the equity in the property but does not provide the same protective measures regarding loan payoff upon transfer of ownership.