Question:

What is the truth in lending disclosure demand feature?

Answer:

A mortgage may or may not have a demand feature. The truth in lending disclosure statement should tell you whether or not the mortgage you're applying for has a demand feature. If a mortgage has a demand feature, this means that the mortgage lender can, at anytime and for reasons specified in the loan contract, demand full payment from you.

Does your mortgage have a demand feature?

To find out if your mortgage has a demand feature, look up your copy of the truth in lending disclosure statement. Under the "DEMAND FEATURE" section, there should be two options:

[ ] This loan does not have a Demand Feature
[ ] This loan has a Demand Feature.

If the second box is checked, then your mortgage has a demand feature. Refer to the loan contract for the terms of the truth in lending disclosure demand feature.

What does a mortgage demand feature entail?

Mortgage demand feature terms vary by lender and by mortgage product. A check in the truth in lending disclosure demand feature section can mean anything. Generally, however, a mortgage with a demand feature can stipulate one or more of the following demand provisions in the loan contract:

  • A demand clause

    A demand clause provides that the mortgage lender can demand full payment from you, at anytime and without sufficient warning, for any reason.

    A demand clause puts you, the borrower, in a vulnerable position. It gives your mortgage lender absolute power over you on the matter of repayment. The lender can raise your interest rates. You can't very well object since the mortgage lender can simply demand full payment.

  • A due-on-sale clause

    The presence of a due-on-sale clause means that your loan will become due in full if you sell the mortgaged property. In other words, you cannot simply transfer the mortgage to the home buyer.

  • An acceleration clause

    An acceleration clause means that if you breach any of the provisions of the mortgage contract, the mortgage lender can demand full payment. It doesn't matter whether the violation is minor or major. If you are in breach of your loan contract, the mortgage lender can immediately call in your loan.

Protecting Yourself against the Demand Feature

The truth in lending disclosure statement simply tells you whether or not your mortgage has a demand feature. The details of this demand feature can be found only in the loan contract.

It is very important that you carefully check the loan contract to see what demand provisions are included. Ask your loan officer to explain the provisions you do not fully understand. Finally, never get a mortgage that comes with an all-sweeping demand clause.

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