Question
The first example of financial constraints is the Lock-out clause. It is defined as Some loans include a clause that prohibits any prepayment for a
The first example of financial constraints is the Lock-out clause. It is defined as "Some loans include a clause that prohibits any prepayment for a specified time period, often for as long as 10 years. This stringent form of control, called a lock-out clause, is placed on very high-yield loans to preserve a lender's earning position". Should the borrower have the cash to make early payments, they are restricted from doing so should they be under a lock-out clause. Should the loan be a high amount, then it is likely the lender will want a lock-out cause to maximize the potential return on the loan. The second example of a financial constraint that I have is a Due-on-sale clause. It is defined as "Also called a call clause or transfer clause, this provision stipulates that a borrower may not sell, transfer, encumber, assign, convey, or in any way dispose of the collateral property or any part thereof without the express written consent of the lender. The due-on-sale clause goes on to state that if any of the forgoing events should occur without the lender's consent, the loan balance then becomes due in full immediately, with true jeopardy of foreclosure if not so paid".
editor), D.S.P.D.E.J. (. (2019). Essentials of Real Estate Investment Twelfth Edition (12th Edition). Kaplan Professional Education. https://libertyonline.vitalsource.com/books/9781475485417
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