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
In the US public-land survey terminology, range lines refer to two parallel north and south lines. In other words, range lines are north-south division lines used in the government’s ...
Acquired by adverse land use for a statutory period of time. ...
Inappropriate and possibly harmful use of land. For example, a factory located on the shore of a river discharges toxic pollutants into the waterway. ...
A sash window having two vertically moving sashes respectively offset by sash weights. Each sash closes a different part of the window. ...
Unintentional error. An example is a house that the seller wants $1,000,000 for but it is mistyped as $100,000. An error may be unilateral or mutual. Some types of errors are the basis to ...
Depicts the best way to allocate land to maximize usefulness and profitability. ...
Same as term financial institutions: Institutions acting as intermediaries between suppliers and users of money. The financial markets are where those wanting funds are matched with those ...
Contractual clause allowing one or both parties to terminate the agreement if a specified occurrence takes places. This is a cancellation clause, which allows the agreement to become null ...
Indicators reflecting future changes in economic conditions; referred to as the Composite Index of 11 Leading Indicators. This index indicates the direction of the economy in the next six ...
Have a question or comment?
We're here to help.