A wraparound mortgage is a junior encumbrance that is ordinarily made when property will support additional financing, and the mortgagor does not want to prepay a favorable existing mortgage obligation but needs additional cash, or where the existing obligation precludes prepayment or contains an excessive prepayment penalty. In such an instrument, the wraparound beneficiary charges interest on the entire amount of the wraparound loan and agrees to make the principal and interest payments on the existing prior encumbrance as it collects principal and interest payments from the mortgagor.
Puerto Rico Wraparound Mortgage, also known as an All-Inclusive Mortgage or Wrap Mortgage, is a legal agreement used in real estate transactions where a buyer takes out an additional mortgage that encompasses the existing mortgage on the property. This type of mortgage is popular in Puerto Rico as it offers certain advantages to both buyers and sellers. In a Puerto Rico Wraparound Mortgage, the buyer makes mortgage payments to the seller, who in turn continues making payments on the existing mortgage. This arrangement allows the buyer to benefit from the seller's lower interest rate and potentially bypass costly loan origination fees. Moreover, it often allows buyers with less-than-perfect credit to acquire a property and build equity without going through a traditional lender. There are two main types of Puerto Rico Wraparound Mortgages: 1. Classic Wraparound Mortgage: In this scenario, the seller has an existing mortgage on the property, which is not paid off when the buyer purchases the property. The buyer assumes the seller's mortgage and agrees to make monthly payments directly to the seller. The seller then uses the buyer's payments to cover the original mortgage and keeps the excess as profit or applies it towards other expenses. 2. Reverse Wraparound Mortgage: This type of wraparound mortgage occurs when the buyer obtains the initial mortgage and the seller contributes to the sale by taking out a second mortgage. The buyer makes payments to the seller, who then uses those payments to cover the second mortgage payment. This kind of arrangement can benefit sellers by allowing them to earn interest on the wraparound portion of the mortgage. It is important to note that Puerto Rico Wraparound Mortgages should be structured with legal assistance to ensure compliance with local laws and regulations. Parties involved must carefully consider risks, including potential default scenarios, foreclosure procedures, and lender consent requirements. Overall, Puerto Rico Wraparound Mortgages offer flexibility and convenience to buyers and sellers by providing an alternative financing option. It allows buyers to purchase properties without going through traditional lenders and sellers may benefit from potential profit, interest, or a quicker sale.
