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
Book value is a quintessential term used in the financial world and the real estate business. Though, there are slight differences in its interpretation in these two areas of ...
Street having access only at one end and terminating with a circular turnaround area. The circular area permits automobiles to exit the street without having to use a home's driveway to ...
When you hear the term annuity, you’re often left wondering what is an annuity? The simplest annuity definition is a financial product designed to ensure cash flows at equal intervals ...
Structure of prefabricated units. ...
Contract that intends to convey property form one individual to another but is defective in one respect. ...
Method of selling and obtains possession, but the seller retains the title. ...
Same as term Veterans Administration Mortgage: Mortgage guaranteed up to 30 years by the Veterans Administration to veterans meeting minimum requirements. Originally established by the ...
Interest rate on a mortgage that moves up or down based on some variable such as an index of lender's cost of funds, inflation rate, or prime rate. ...
Conversion of real property into money. The breaking up and selling of a real estate company for cash distribution to its creditors and then owners. Chapter 7 of the Federal Bankruptcy ...
Have a question or comment?
We're here to help.