The due-on-sale clause is also known as what?

• A. Alienation clause
• B. Prepayment penalty
• C. Acceleration clause
• D. Interest rate cap

Answer: (A)

The due-on-sale clause is known as an alienation clause. It is included in a mortgage to protect the lender when property ownership changes hands. By labeling the loan as tied to the property, the lender can require the borrower to pay the full remaining balance or have the loan assumed under lender-approved terms when the property is transferred. This is different from a prepayment penalty (a fee for paying off early) and from an acceleration clause (which speeds up the due date if the borrower defaults). It also isn’t related to interest rate caps, which limit rate adjustments on adjustable-rate loans.