Question:

What is a demand clause on a mortgage?

Answer:

A demand clause is an option protecting and benefitting the lender. It can be used to make the borrower pay their loan on sale of the property, rather than transfer their debt on the house to the buyer – this is also known as due on sale. This protects the lender when interest rates are climbing and he needs money to lock in higher rate loans.

A demand clause will also allow the lender to require repayment of the loan in full for any reason. In addition, the lender is also allowed to raise interest rates even if the borrower is not selling the property.

If you have a demand feature on the loan agreement, you should find out what exactly it is. A popular variation of the demand clause is the acceleration option which allows the lender to exact full repayment of the loan any time any obligation on the agreement is violated. Or, in other words, the lender has the right to call the loan.

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