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
A method of brick construction where the bricks are laid with their sides facing outward. ...
Earthquake insurance is the type of insurance policy that specifically covers damages to your real estate caused by seismic activities. It can refer both to the rare coverage against ...
(1) Occupancy rate at which rental income of a property pays for operating expenses and debt service, leaving no residual cash flow. (2) The level of sales of a real estate business where ...
Individual making the payments in a mortgage or pledging a mortgage or property. ...
When we talk about agency as a real estate concept, we understand the relationship between the real estate agent and the client. However, the term dual agency defines a type of agency that ...
Financial intermediaries who invest in deeds of trust and mortgages, and hold them in their own portfolio. Large financial firm that uses depositors' money to lend to borrowers. ...
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 ...
Type of a real estate investment trust whose investment money is used for the purchase of a portfolio of specific properties to be managed in order to generate investment return through ...
Geographic location where a vacant or occupied structure exists. It usually means the land reserved is for a future building. ...
Have a question or comment?
We're here to help.