The only loans that can be wrapped are assumable loans like FHA and VA loans to qualified purchasers without the permission of the lender. The difference in principal amounts and amortization schedules will affect the actual spread made.
#A wraparound loan plus#
The lender earns 6% on the $25,000.00, plus the difference on between the 3% and 6% on the $100,000.00. For example, suppose a $100,000.00 mortgage has a 3% rate and the new mortgage of $125,000.00 has a rate of 6%. You may question why would anyone want to do a wraparound mortgage anyway?Ī warp is attractive to sellers because they can leverage a lower interest rate on an existing mortgage into a higher yield for themselves. The borrower makes the payment to the new lender on the larger loan and the lender makes payments on the original loan.
This type of loan is frequently used as a method of refinancing a property or financing the purchase of property when an existing mortgage cannot be paid off. The seller/lender extends to the buyer a junior mortgage which wraps around and existing mortgage, typically the bank or the seller of the real property assumes the payment of the existing mortgage and provides the borrower with a new larger loan, usually at a higher interest rate. You may or may not heard of this term before but a wraparound mortgage or “wrap” is a form of secondary financing for the purchase of real property.
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