Wraparound Mortgage (Trust Deed)
Definition of "Wraparound Mortgage (Trust Deed)"
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.
Popular Real Estate Terms
Founded in 1934 and located in Garden, CA with 1993 membership of 9,000, the IRWA is a professional association of appraisers, property managers, title examiners, and others having interest ...
Distance from the location of natural ground and water to the actual ground level. ...
The word’s etymology reflects several diverse or seemingly unrelated topics under the same umbrella. As part of everyday discourse, you’ll find the term “omnibus” ...
The ratio between a structure's total floor area and the total land area of the land upon which it is constructed. The floor area ratio definition is the ratio of the total amount of usable ...
Inverted gable roof design where the two side slope upward from the center to the eaves with a valley in the middle. The roof resembles the wings of a butterfly, hence, the name. ...
A cost of funds index that most adjustable rate mortgages written in California in recent years are tied to. Computed by the Federal Home Loan Bank of San Francisco, it reflects the cost ...
Combined action of two or more people either for or against something. In real estate, used to indicate a common property ownership interest. Joint is also used to indicate a shared ...
(1) When used as a noun, refers to journals or ledgers. (2) When used as a verb, refers to the recording of an entry. ...
Modeled after the English Georgian style, this architecture is a perfectly scaled grand symmetrical structure which is extremely formal and conventional in style. ...
Have a question or comment?
We're here to help.