What Do Mortgage Covenants Mean?

A mortgage acts as a contract between the lending bank and the homeowner. Before signing your mortgage, you should be aware of the terms, such as covenants found within the text.

Mortgage Covenants

Clauses offering a promise to do or not do something are known as mortgage covenants. By signing the mortgage, the borrower agrees to uphold these promises.

Positive Covenants

A covenant stating that the mortgagee will do something is considered a positive covenant. Typical conditions of positive covenants include paying the monthly mortgage payment or keeping homeowner's insurance.

Negative Covenants

Negative covenants outline certain practices that the mortgagee cannot do with or on the property. There could be a covenant restricting the ability to rent the property for profit.

Warning

Failure to comply with mortgage covenants may result in the repossession of your home or other property. Most commonly, this is the result of not making the monthly payment required.

Considerations

Although you may have agreed to certain covenants when signing the mortgage, your circumstances may change over time. A loan modification or refinance of the mortgage debt can alter certain covenants found in the original mortgage. If you are in this situation, contact the bank or lender to discuss changes.

References

• Shire Direct: Mortgage Covenants Explained