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.
Utah Wraparound Mortgage is a unique form of financing that allows a buyer to assume an existing mortgage while also obtaining an additional loan to cover the remaining balance. This type of mortgage is commonly used in Utah and offers benefits for both buyers and sellers. A Utah Wraparound Mortgage, also known as an all-inclusive trust deed (AID) or wrap mortgage, is a creative financing option that enables a buyer to acquire a property without requiring traditional financing methods. The buyer assumes the seller's existing mortgage, including its interest rate and terms, while simultaneously obtaining an additional loan to cover the difference between the existing mortgage and the purchase price of the property. This form of financing is often utilized when the buyer cannot secure a conventional loan due to credit issues or other financial constraints. With a Utah Wraparound Mortgage, the buyer avoids the need for a down payment and can benefit from a potentially more favorable interest rate than what they would have obtained with a new mortgage. Additionally, the buyer can avoid closing costs associated with a traditional mortgage since the existing mortgage remains in place. For sellers, a Utah Wraparound Mortgage offers an attractive alternative to conventional selling methods. It allows sellers to sell their property more quickly by attracting buyers who may not qualify for traditional loans. Sellers can continue to receive payments on their existing mortgage and earn interest on the new loan they extend to the buyer. It also provides an opportunity for the seller to sell their property at a higher asking price, as the buyer assumes the existing mortgage without the need for large upfront costs. There are two main types of Utah Wraparound Mortgages: the underlying wraparound mortgage and the overlying wraparound mortgage. 1. Underlying Wraparound Mortgage: This type of wraparound mortgage involves a buyer assuming the seller's existing mortgage, which becomes the "underlying" mortgage. The buyer then makes monthly payments to the seller, who in turn uses a portion of those payments to cover the original mortgage. The remaining funds are considered the "wraparound" portion and are paid directly to the seller. 2. Overlying Wraparound Mortgage: In this scenario, the seller holds the original mortgage, and the buyer obtains a secondary loan, typically from the seller, to cover the remaining balance. The buyer makes monthly payments to the seller, who, in turn, continues to make payments on the original mortgage. The overlying wraparound mortgage effectively "wraps" around the existing mortgage and creates an additional layer of financing. In conclusion, a Utah Wraparound Mortgage is a creative financing option that benefits both buyers and sellers. It allows buyers to assume the seller's existing mortgage while obtaining an additional loan, avoiding the need for a down payment and potentially securing a more favorable interest rate. For sellers, this type of financing attracts buyers who may not qualify for traditional loans, facilitates a quicker sale, and offers the opportunity to earn interest on the new loan. Understanding the difference between underlying and overlying wraparound mortgages is crucial for both parties involved.
