Kovats Real Estate School Practice Test 2026 - Free Real Estate Practice Questions and Study Guide

The term "due on sale clause" refers to a provision in mortgage agreements that allows the lender to require full repayment of the loan upon the sale of the property. This clause is typically included in a mortgage contract to protect the lender’s interests. If the property is sold, the lender has the right to demand that the borrower pay off the remaining mortgage balance in full, rather than allowing the new owner to assume the mortgage.

This clause serves to ensure that the lender can maintain control over who is responsible for the mortgage and how the loan is managed. When a borrower sells the property, the lender can avoid potential risks associated with transferring the loan to someone who may not be creditworthy.

Other options do not accurately describe the purpose of a due on sale clause. For instance, the options suggesting that it reduces payment amounts, prohibits sale without notice, or requires the property to be rented, do not align with the fundamental concept of the clause, which focuses primarily on the lender's right to demand full repayment upon sale of the mortgaged property.