What is the purpose of a defeasance clause?

The purpose of a defeasance clause in a mortgage or loan agreement is to provide the borrower with a way to regain full title after they have made the required payments and fully repaid the debt. This clause essentially stipulates that once all obligations under the loan have been fulfilled, the lender's claim or lien on the property is nullified, allowing the borrower to reclaim complete ownership without any encumbrances from the mortgage.

This is particularly important for borrowers, as it clearly outlines the process for removing the lender's interest in the property once the debt is settled. Having this clause in place ensures transparency and provides peace of mind to the borrower regarding their ownership rights once they have satisfied the terms of the loan. The other options do not accurately reflect the primary function of a defeasance clause. For example, options related to interest rates, prepayment penalties, or loan assumptions do not pertain directly to the crucial aspect of regaining title under the terms outlined in such a clause.