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
Existing state of affairs with respect to the real estate market and conditions. ...
In taxation, the excess of total long-term gains minus total long-term losses on the sale of real estate. Long-term classification is for real estate held one year or more. This is reported ...
Subordinate lien to a previous lien. Generally attached after a previous, and therefore senior, lien has been attached to property. In the event of a foreclosure action where there are ...
Roof having a concave angle. ...
The yield after deduction inflation and its effects. It is the return on investment stated in real purchasing power. ...
A mortgage loan is nothing more than a real estate debt instrument. Acquiring a mortgage loan is the most common method of financing a home in America. The benefits are tremendous and ...
Rating used by lenders and creditors to determine if a credit applicant should be granted credit. It depends on many factors such the applicant's job history, earnings, net worth, etc. Some ...
The term foraging comes from the old germanic language, which passed through Old French “fuerre” and “fourrage” and it means the search for wild food resources. ...
Sometimes, a perplexing legal term (a genuine headscratcher) emerges when buying or selling a property. You know you should know it, but its precise definition escapes you. Today's special ...
Have a question or comment?
We're here to help.