Wrap-Around Mortgage
Definition of "Wrap-Around Mortgage"
A mortgage loan transaction in which the lender assumes responsibility for an existing mortgage. A wrap-around can be attractive to home sellers because they may be able to sell their home for a higher price. In addition, if the current market interest rate is above the rate on the existing mortgage, the seller can earn an attractive return on the cash foregone from the sale. For instance, if the $70,000 mortgage in the example has a rate of 6% and the new mortgage for $95,000 has a rate of 8%, S earns 8% on his $25,000 investment plus the difference between 8% and 6% on $70,000. The total return is about 13.5%. Only assumable loans are legally able to be wrapped. Assumable loans are those on which existing borrowers can transfer their obligations to qualified house purchasers. Today, only FHA and VA loans are assumable without the permission of the lender. Other fixed-rate loans carry 'due on sale' clauses, which require that the mortgage be repaid in full if the property is sold.
Popular Mortgage Terms
A second mortgage on a property that is not paid off when the first mortgage is refinanced. The second mortgage lender must allow subordination of the second to the new first mortgage. ...
Administering loans between the time of disbursement and the time the loan is fully paid off. Servicing includes collecting payments from the borrower, maintaining payment records, ...
The provision of the U.S. tax code that allows homeowners to deduct mortgage interest payments from income before computing taxes. Points and origination fees are also deductible, but not ...
The ratio of housing expense to borrower income. This ratio is one factor used in qualifying borrowers. ...
Cost-of-Funds Index, one of many interest rate indexes used to determine interest rate adjustments on an adjustable rate mortgage. ...
USDA loans are a form of government-backed financing for both first-time home buyers and move up buyers looking for a second or third property. These loans have little to do with ...
A documentation rule where the borrower discloses assets and their source but the lender does not verify the amount. ...
The month in which a zero loan balance is reached. The payoff month may or may not be the loan term. ...
Every ARM is tied to an interest rate index. An index has three relevant features:availibility, level, volatility. All the common ARM indexes are readily available from a published source, ...
Have a question or comment?
We're here to help.