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About Mortgage Demand Feature
When you are looking to get a mortgage to buy a new property there are tons of documents that you have to sign with various kinds of clauses.
Some of these clauses are to protect the borrowers; however, some of them could give more benefits to lenders.
One such clause that borrowers usually sign unknowingly is the mortgage demand feature. In this post, we will understand what is mortgage demand feature in detail.
What Does A Demand Feature Mean In A Mortgage Loan?
The mortgage demand feature simply allows the lender to request the borrower to pay the full amount of the loan before the tenure ends, which must be followed if you have agreed to it in the mortgage agreement.
If the lender demands this clause anytime for any reason, the borrower needs to pay the amount in full including the principal and interest to date.
This feature protects lenders from low-interest loans provided to homebuyers in a rising interest-rate market.
If the demand clause says “yes” in your agreement, it is better that you avoid signing the agreement even if the lender states that they will not use this clause against you. You must look for all the options very carefully before signing the dotted line.
If the demand clause says “no” means that the lender would not ask the borrower to pay off the loan before the tenure ends, unless the borrower violates other parameters in the agreement.
Also, if you sell your home before the mortgage expires, you will have to pay the entire mortgage directly to the lender.
Why Would A Lender Put The Mortgage Demand Feature In A Loan?
Most of the lenders will have this clause marked as “no” in the mortgage agreement.
The lender will have the demand clause included in your agreement if they see some uncertainty in your application.
It all depends if your lender trusts your ability to pay the mortgage. If the lender insists on including a mortgage demand clause, it’s worth taking the time to ask why it was included in your contract.
It is possible that the lender encountered some issues with your credit history or employment in your application due to which this clause was included in your contract.
Talking to your lender and understanding the reason will help you to justify and remove the demand clause from your mortgage agreement.
If the lender still insists on putting this clause in your agreement, it’s worth following up and asking for clarification.
You can negotiate to remove this provision, or at least know what needs to be fixed before you decide to go with this lender or approach a new lender.
What Are The Types Of Mortgage Demand Features?
There are three basic loan demand features when it comes to a mortgage. These are the mentioned below:
Acceleration clauses: This is the main reason why some lenders ask to pay off your loan earlier than the agreed term because you may be in breach of your mortgage agreement.
Under the accelerated clause, the lender may ask for the full payment of the loan if the borrower is unable to pay multiple payments even after the grace period.
Due on sale: As the name suggests, this clause comes into play when the borrower is selling the home.
When you sell your home, you have to pay the entire balance on the mortgage including the principal and interest, and will not be transferred to the new buyer purchasing the property.
This is one of the most common loan demand features used by most lenders.
Loan demand feature: In this type of clause the lender may ask the borrower to pay the complete mortgage balance anytime without providing any reason.
In such a case, it is best to talk to your lender and try to resolve the issue amicably.
Conclusion
Mortgage demand features may seem unreasonable at times irrespective of your relationship with your lender.
You and your real estate attorney read the fine print on your mortgage to ensure that you check for this clause in your contract.
If you have this clause included in your contract, try to reason with your lender to get it removed by mutual understanding before you decide to go with some other lender.
