Mortgage Contingency Clause in Real Estate Home Purchase Contract

A “loan contingency clause”, also known as a “mortgage contingency clause” , is a provision in the home purchase contract that says that if the prospective buyer can’t get a mortgage within a fixed period of time, s/he can call the whole deal off. In other words, the agreement is conditional on the buyer being able to obtain a mortgage on the property.

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Homeowner with Outstanding or Upside Down Mortgage

If the value of your home drops, making the amount of your mortgage higher than the actual value of the property, you are considered to have an “upside down mortgage.” However, an upside down mortgage is just like any mortgage: it is a contract that legally binds you to fulfill your obligation of paying the loan in full.

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Mortgage Prepayment Penalty Provision

A charge the lender makes when a mortgage is repaid before a certain period of time elapses. In effect, you are “penalized” for paying off your mortgage early. Not all lenders impose a mortgage prepayment penalty. From a mortgage lender’s perspective a prepayment penalty helps the lender at least recoup some or all of the significant expense it incurs in putting a new loan on the books. If the loan is to be repaid quickly, such as if you refinance it elsewhere, the lender can incur a loss, as it has not had time to make up the costs it advanced. Lenders also know a mortgage prepayment penalty discourages prepayment.

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