Posted on: 31st Oct, 2005 09:13 am
Why lenders like wrap-around mortagage?
Hi Gutten,
Lenders may gain from a wrap-around mortgage, although they do not prefer this mortgage for its risk factor, as they can enjoy profit with the difference between the new interest rate and the old interest rate.
For example, suppose you have taken a mortgage of $50,000 at 6% on your home. You sell down your home to some other for $70,000. The buyer makes a downpayment of $5,000 and borrows the rest i.e. $65,000 on a new mortgage. Now, this mortgage wraps around the previous mortgage of $50,000 as the new lender (which may be you) takes the responsibility to repay the old mortgage.
While doing so, suppose the new lender (generally the seller) charges 8% on the new mortgage. Now, the new lender is earning 8% on $15,000 as cash outlay and also from the difference between 8% and 6% on $65,000. so, he is gaining from two sides.
Hope this information clears your query.
Regards,
Blue
Lenders may gain from a wrap-around mortgage, although they do not prefer this mortgage for its risk factor, as they can enjoy profit with the difference between the new interest rate and the old interest rate.
For example, suppose you have taken a mortgage of $50,000 at 6% on your home. You sell down your home to some other for $70,000. The buyer makes a downpayment of $5,000 and borrows the rest i.e. $65,000 on a new mortgage. Now, this mortgage wraps around the previous mortgage of $50,000 as the new lender (which may be you) takes the responsibility to repay the old mortgage.
While doing so, suppose the new lender (generally the seller) charges 8% on the new mortgage. Now, the new lender is earning 8% on $15,000 as cash outlay and also from the difference between 8% and 6% on $65,000. so, he is gaining from two sides.
Hope this information clears your query.
Regards,
Blue
Any advantage for the buyers?
Hi Rhonda,
There is definite advantage with buyers under some circumstances.
Suppose a buyer finds his credit report not good enough to take a mortgage with a lender. Under this condition the buyer can approach a seller of a property which is already mortgaged and offer him a higher rate than the existing mortgage so that the seller can get rid of mortgage and also can earn profit wit the higher rate.
Thus the buyer may get a seller, looking to get rid of his mortgage, to take a mortgage for which he was unable to qualify with a established lender. He does not have to follow the initial procedures with a lender. There is no need to pay the closing costs.
It can also help a buyer, who wishes to make lower down payments by negotiating with the seller. So, depending upon the specific situation, it may help a buyer although he has to pay a higher interest rate than the rate on the existing mortgage but the new rate may be lower than the market rate.
To get a basic idea on wraparound mortgage you may check in here.
God bless you.
For MortgageFit,
Samantha
There is definite advantage with buyers under some circumstances.
Suppose a buyer finds his credit report not good enough to take a mortgage with a lender. Under this condition the buyer can approach a seller of a property which is already mortgaged and offer him a higher rate than the existing mortgage so that the seller can get rid of mortgage and also can earn profit wit the higher rate.
Thus the buyer may get a seller, looking to get rid of his mortgage, to take a mortgage for which he was unable to qualify with a established lender. He does not have to follow the initial procedures with a lender. There is no need to pay the closing costs.
It can also help a buyer, who wishes to make lower down payments by negotiating with the seller. So, depending upon the specific situation, it may help a buyer although he has to pay a higher interest rate than the rate on the existing mortgage but the new rate may be lower than the market rate.
To get a basic idea on wraparound mortgage you may check in here.
God bless you.
For MortgageFit,
Samantha
