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.
A Rhode Island Wraparound Mortgage, also known as an all-inclusive mortgage or an all-inclusive trust deed, is a unique financing option available to homeowners and real estate investors in Rhode Island. It is a creative type of mortgage that allows a buyer to assume the existing mortgage of a property while simultaneously obtaining additional financing. In a traditional real estate transaction, the buyer secures a new mortgage loan from a lender to purchase the property. However, a Rhode Island Wraparound Mortgage takes a different approach. Instead of getting a completely new loan, the buyer assumes the seller's existing mortgage loan and adds a loan amount, creating a "wraparound" loan. This arrangement combines the existing loan with a new loan, resulting in a single monthly payment to the seller that encompasses both mortgages. This type of financing option is particularly beneficial when the seller has an advantageous existing mortgage rate or a low-interest loan, as the buyer can benefit from these favorable terms. Additionally, a Rhode Island Wraparound Mortgage allows buyers who may not otherwise qualify for a traditional mortgage loan to acquire the property without meeting stringent credit requirements or providing a large down payment. There are two primary types of Rhode Island Wraparound Mortgages: 1. Open Wraparound Mortgage: In an open wraparound mortgage, the terms of the loan are fully disclosed to the existing lender. The lender must approve the assumption of the existing loan by the buyer and consent to the additional loan being added to the wraparound mortgage. This type of wraparound mortgage offers more transparency and reduces the risk of default. 2. Closed Wraparound Mortgage: A closed wraparound mortgage is structured without the consent or knowledge of the existing lender. The buyer assumes the existing loan without informing the lender and completes the transaction without their involvement. However, this type of wraparound mortgage carries a higher level of risk, as the original lender may have a due-on-sale clause that could trigger foreclosure if they discover the transfer. Rhode Island Wraparound Mortgages provide flexibility for buyers and sellers alike, offering an alternative financing option in real estate transactions. They can be complex legal agreements, so it is essential for all parties involved to seek legal counsel and thoroughly understand the terms before proceeding. These mortgages can help buyers acquire desirable properties and offer sellers the opportunity to sell their homes more quickly and at favorable terms.
