Wraparound Mortgage (Trust Deed)

Definition of "Wraparound Mortgage (Trust Deed)"

Anna Hewitt real estate agent

Written by

Anna Hewittelite badge icon

Summer House Realty Llc

Also called all inclusive trust deed (AITD). A mortgage (trust deed) that encompasses existing mortgages and is subordinate to them. The existing mortgages stay on the property and the new mortgage wraps around them. The existing mortgage usually carries a lower interest rate than the one on the new mortgage loan. This loan is a type of seller financing. This loan is a type of seller financing. It is often used with commercial property where there is substantial equity in the property, and the existing first mortgage has an attractive low interest rate. By obtaining a wraparound, the borrower receives dollars based on the difference between current market value of the property and the outstanding balance on the first mortgage. The borrower amortizes the wraparound mortgage which now includes the balance of the first mortgage, and the wraparound lender forwards the necessary periodic debt service to the holder of the first mortgage. Thus, the borrower reduces the equity and at the same time obtains an interest rate lower than would be possible through a normal second mortgage. The lender receives the leverage resulting from than the interest paid to the holder of the first mortgage. Example: the sale price is $300,000. There is a mortgage balance of $200,000 payable at 9% interest.. the buyer will pay $30,000 cash down and agrees to pay the balance at 11%. By using the wraparound mortgage, the seller can have the buyer agree to a mortgage of $270,000 at 11%; the buyer makes the application monthly payment to the seller. The seller, in turn, continues to make payments on the underlying first mortgage which was written at 9%. This means that the seller, in his or her role as a mortgagee, now earns 11% on $70,000 (the difference between the new mortgage of $270,000 and the existing mortgage of $200,000 ) and 2% on the existing $200,000 loan. The seller grants a deed to the buyer in the regular way. Note that for this method to work, the original lender must be agreeable to the seller transferring title.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

Small furnace placed between the studs of a wall. It is typically electric, but in the past more frequently was gas. ...

Tile placed on a wall as decoration, such as in a bathroom or kitchen. ...

Claim of a person or business to real property such as by exercising an option. ...

An accessory building is an outdoor structure used by the occupants of the main building or house. They have different functions and can be detached or attached to the main building on the ...

The basic home inspection definition is well-known for everyone, right?However, when it comes to real estate, the term “inspection” can serve a bunch of purposes – but the ...

Statement made verbally. It is better legally to have a written statement because verbal ones without witnesses may be denied. ...

Increase in the outstanding loan balance arising when the mortgage payment does not fully meet the interest charge on the loan. This occurs under indexed loans or when the indexed rate ...

Valuation method for land or improvements to property. It takes into account gross rentals less operating expenses. ...

A clause inserted in a mortgage agreement requiring a future buyer of the subject property to obtain the consent of the lending institution prior to assuming the mortgage. In this ...

Popular Real Estate Questions