Kovats Real Estate School Practice Test 2025 – 400 Free Practice Questions to Pass the Exam

A "due on sale clause" is a provision in a mortgage agreement that allows a lender to demand full repayment of the loan balance if the property is sold or transferred. This clause protects the lender's interests, as it prevents the new owner from assuming the existing mortgage without the lender's approval. When a property with this clause is sold, the lender can demand that the outstanding balance of the mortgage be paid in full at that time.

The other options do not accurately reflect the implications of a due on sale clause. For instance, requiring a partial payment of equity does not capture the full obligation that arises from this clause. Similarly, the reduction of the interest rate or adjustment of the mortgage terms is unrelated to the payment obligation triggered by a sale. The core function of a due on sale clause is to ensure that the lender can recoup their loan if the property changes hands, which is why full repayment of the mortgage balance is the correct answer.