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Wraparound Mortgage -
A creative financial tool
Wraparound mortgage, also called an all inclusive
trust deed, is a financing tool where a new mortgage is placed in a subordinate
(secondary) position to the original mortgage and the new mortgage includes the
unpaid balance of first.
Here's how it works: - The seller
holds onto the existing mortgage
- The seller names the property's selling price
- The seller offers the buyer a loan at a higher interest rate than
the existing
mortgage - The buyer pays the seller a fixed monthly amount and
- The seller
uses part of this money towards the existing loan.
** The lender's incentive
is to profit from the difference in interest in the two loans.
The wraparound
mortgage is a creative way to allow a buyer to purchase property without having
to qualify for a loan or to pay closing costs. The contract is made between the
buyer and seller with seller remaining on the original mortgage and title.
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