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
One to whom a gift or bequest is made. ...
The consolidation of items that have been considered a part of property but are not actually annexed, secured, or joined to it. ...
Natural resource, such as oil, coal, and timber, having a limited useful life and subject to depletion. Such assets decrease in worth primarily due to the extraction of the valued commodity ...
Material used for covering the surfaces of walls or ceilings. Plaster used to be made from plaster of paris, but is now primarily made from cement mixed with sand and water. After plaster ...
What is real estate speculation? The term real estate speculation may have a difficult definition, but explaining it may be easier. Think of the stock market, buying stocks when they are ...
A reassessment or a reappraising is a decision or strategy made by the owner or the state or local authorities. The reassessment definition is a revision of an earlier assessment. Property ...
(1) Written statement by a responsible individual or entity of the correctness and reliability of something. (2) Written permission to do something, such as receiving a real estate ...
Person or entity that has title or a right to something which is typically being held. Examples are real property, corporation, and personal property. Ownership of property may be held by ...
Aerial navigation that may interfere with a property owner, such as creating undue noise. The value of land near an airport may decline in value for this reason. Further airport congestion ...
Have a question or comment?
We're here to help.