WHAT IS A “WRAPAROUND” MORTGAGE?
The term is used to describe a mortgage whereby the seller, who has an existing mortgage on the home, offers financing to the buyer at a below-market interest rate. For example, the seller has an existing first mortgage of $40,000 at 7% on the home which sells for $100,000. The seller then requires the buyer to make a $10,000 down payment and to pay back to the seller the $90,000 wraparound mortgage at 1% interest. The new mortgage covers the selling price, minus the down payment, and the seller’s existing mortgage continues to be paid by the seller. Benefits include greater profits to the seller and the opportunity for a lower interest rate for the buyer. Wraparound mortgages can only be created, however, with the original lender’s permission or if there is no legally enforceable due on sale clause. The transaction can be very complex and both parties should seek the counsel of a real estate attorney. A real estate agent who is a REALTOR can assist you in locating a qualified attorney
