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
Sometimes a landlord agrees to implement within the rent contract the possibility of the tenant buying the house at a certain price, by a certain date. It’s what’s called in the ...
An organized group of ethical behavior guidelines governing the day-to-day activities of a profession or organization. ...
Approving or permitting an action to occur. ...
What is a botel?, you ask. You know hotels, right? And the marketing denomination of them to motorists; the "motel”. Well, the best botel definition is “hotel for ...
Appearing in person. In propria personal is a formal judicial request to appear personally before the court to plead a particular matter. While it does not prevent an individual from ...
An agreement specified in the lease providing the tenant the option to renew the lease for a given time period upon the expiration of the initial lease. Most lease options include the ...
Member of a partnership whose liability for partnership debts is limited to the amount invested in the partnership. A limited partner is prohibited from taking active part in the management ...
Legal abbreviation meaning with husband. ...
To define access rights, we must understand the need for access rights. There are several reasons for using access rights for any property; some are necessary and granted with little to no ...
Have a question or comment?
We're here to help.