A mortgage contains a due-on-sale clause. What effect does this clause have when the property is sold?

• A. The lender can call the entire balance due if the property is sold
• B. The loan cannot be accelerated
• C. The borrower may transfer the loan without consent
• D. The interest rate becomes fixed for life

Answer: (D)

A mortgage with a due-on-sale clause is a provision that gives the lender the right to demand full repayment of the loan balance when the property is sold or title is transferred. This is the mechanism behind loan acceleration. When the property changes hands, the lender can choose to call the loan due in full rather than letting the existing terms continue for the new owner. In practice, the new buyer may still take over the loan only if the lender approves an assumption or refinance; otherwise, the loan is accelerated and must be paid off.

This clause does not make the interest rate fixed for life, and it does not imply that the loan cannot be accelerated. It also means the loan generally cannot be transferred to the new owner without the lender’s consent or without meeting the lender’s approval conditions.