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
The prime rate, a benchmark interest rate banks use, plays a significant role in the real estate market. Essentially, it’s the interest rate that commercial banks charge their most ...
An offering of securities, stock and/or debt, directly to investors rather then through the public exchange markets. An advantage of a private placement to a real estate business is that ...
(1) Judgment against a defendant who does not respond to the plaintiffs lawsuit or fails to appear in court at the hearing or trial date. (2) Judgment issued by the court against the ...
Formal statement by an auditor, after through examination and consideration, as to whether a real estate company's financial statements fairly present financial position and operating ...
The appraisal approach is used to estimate the value of an asset, based on various factors to reach the closest educated guess of the asset. While an appraisal approach does consider the ...
Judicially determined minimum selling price for auctioned property. For example, a judge rules that a foreclosed home may be sold for less than $200,000, ...
person designating an agent to act for him. Primary individual having full financial liability. Amount being risked in a real estate investment. Owner of a real estate business. ...
A reciprocal transfer of property from one entity to another. A market for securities of a real estate companies, such as the New York Stock Exchange (NYSE) ...
Legal proceeding whereby a person's property is attached and used to pay an obligation. The employer may withhold part of the employee's salary to the court until the debt has been paid. ...
Have a question or comment?
We're here to help.