Definition of Wraparound mortgage:
A second mortgage held by a lender who collects payments on it and the first mortgage from the borrower. The lender makes the payments to the original mortgage holder.
A wraparound mortgage is a type of junior loan which wraps or includes, the current note due on the property. The wraparound loan will consist of the balance of the original loan plus an amount to cover the new purchase price for the property. These mortgages are a form of secondary financing. The seller of the property receives a secured promissory note, which is a legal IOU detailing the amount due. A wraparound mortgage is also known as a wrap loan, overriding mortgage, agreement for sale, a carry-back, or all-inclusive mortgage.
Frequently, a wraparound mortgage is a method of refinancing a property or financing the purchase of another property when an existing mortgage cannot be paid off. The total amount of a wraparound mortgage includes the previous mortgage's unpaid amount plus the additional funds required by the lender. The borrower makes the larger payments on the new wraparound loan, which the lender will use to pay the original note plus provide themselves a profit margin. Depending on the wording in the loan documents, the title may immediately transfer to the new owner or it may remain with the seller until the satisfaction of the loan.
Method used as an alternative to refinancing an entire existing mortgage loan when the mortgagor needs to borrow additional sums against the same asset. The lender combines the unpaid balance on the original loan with the new loan for which the borrower makes one monthly payment (shared between the first lender and the new lender, if different). In this arrangement, the borrower saves penalties associated with a new mortgage and the lender gets to charge new (usually higher) interest rate on the entire loan amount. Also called all inclusive mortgage.
How to use Wraparound mortgage in a sentence?
- John pays $10,000 down and gives Beth a $90,000 note secured by a wraparound mortgage on the home.
- Wraparound mortgages are used to refinance a property and are junior loans that include the current note on the property, plus a new loan to cover the purchase price of the property. .
- A wraparound tends to arise when an existing mortgage cannot be paid off.
- With a wraparound mortgage, a lender collects a mortgage payment from the borrower to pay the original note and provide themselves with a profit margin.
- Wraparounds are a form of secondary and seller financing where the seller holds a secured promissory note. .
Meaning of Wraparound mortgage & Wraparound mortgage Definition