Loan Clauses

Clause is the term used to identify a certain section of a contract or policy. There are many different clauses that can come up in regards to a loan.

Acceleration clause
The acceleration clause is the clause in a mortgage or trust deed that stipulates the entire debt is due immediately if the mortgagee defaults under the terms of the contract.

Alienation clause
An alienation clause is the clause in a mortgage or trust deed which asserts the lender's option to require that the balance of the loan becomes immediately due and payable if the property is sold or transferred by the borrower, preventing the borrower from assigning the debt without the lender's approval. It is also known as a due-on-sale clause.

Prepayment clause
A prepayment clause allows the borrower to pay the debt before the due date.
A prepayment penalty is a charge imposed on a borrower who pays off the loan early. This clause states that the borrower cannot repay a loan prior to a specified date without paying a fee.
This fee goes towards compensating the lender for interest and other charges that would otherwise be lost.
The prepayment penalty is based on a percentage of the loan balance.

Lock-in clause
A lock-in clause in a loan agreement stating that the borrower cannot repay a loan prior to a specified date.

Subordination clause
A subordination clause in a mortgage states that the rights of the holder shall be secondary or subordinate to a future lien. The future lien would take priority.