A wraparound mortgage, also referred to as an extended first mortgage or all-inclusive mortgage, is a loan in which a lender assumes the payments on the borrower’s initial mortgage and provides additional funds. This new mortgage encompasses both the remaining balance of the first mortgage and the borrowed additional funds.
A wraparound mortgage is a second mortgage that combines the borrower’s low-interest first mortgage with additional funds borrowed from a different lender. This type of mortgage covers the outstanding balance of the first mortgage as well as the extra funds borrowed. For example, if a borrower has a $100,000 first mortgage with a low-interest rate and needs an additional $50,000, they can obtain a wraparound mortgage for $150,000. The borrower will then make payments on the wraparound mortgage, which includes payments for the first mortgage and the additional funds borrowed. Wraparound mortgages are also referred to as extended first mortgages or all-inclusive mortgages.
A wraparound mortgage is a type of financing arrangement in which the new mortgage is structured to include the existing mortgage on the property. The new lender assumes the existing mortgage and creates a new, larger mortgage that “wraps around” the original mortgage.
In a wraparound mortgage, the new lender makes payments on the existing mortgage and the borrower makes payments to the new lender. The new lender then collects payments from the borrower that cover both the existing mortgage and the new, larger mortgage.
Wraparound mortgages are legal, but they can be complex and may have specific legal requirements that vary by state. It’s important to consult with a real estate attorney to ensure that the wraparound mortgage complies with all applicable laws and regulations.
One benefit of a wraparound mortgage is that it can allow the borrower to obtain financing without having to pay off the existing mortgage. It can also provide flexibility in terms of interest rates and repayment terms.
One risk of a wraparound mortgage is that the borrower may default on the new, larger mortgage, which could result in foreclosure. There is also the risk that the existing lender may call the loan due if they discover the property has been encumbered with a wraparound mortgage.
Yes, wraparound mortgages can be used for investment properties, but it’s important to carefully consider the risks and legal implications before entering into this type of financing arrangement.
It is possible to refinance a wraparound mortgage, but the process can be more complex than refinancing a traditional mortgage. It’s important to consult with a real estate attorney and a lender experienced in wraparound mortgages.
In some cases, a wraparound mortgage can be transferred to a new owner if the lender agrees to the transfer. However, this process can be complicated and may require the approval of all parties involved.
There may be tax implications of a wraparound mortgage, including potential tax consequences for both the borrower and the lender. It’s important to consult with a tax professional to understand the tax implications of a wraparound mortgage.
To protect yourself when entering into a wraparound mortgage, it’s important to work with a qualified real estate attorney who can review the terms of the mortgage and ensure that your interests are protected. It’s also important to thoroughly understand the terms of the mortgage and the potential risks involved.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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