Why You Should Use Wraparound Mortgages

The wrap mortgage offers you many excellent advantages. As a Beginning Wealth Builder (BWB) you should know why wraparound mortgages offer you so many advantages. Here are a number of these advantages you can use in acquiring $1 million in real estate in one year on borrowed money:

The title of the property comes to you when you buy with a wrap loan. This is extremely important to you because you really own the property it's not like buying on contract where you really don't yet own the property.
You can get a wrap loan from either a traditional mortgage lender or from the seller of the property. Usually, though, your wrap comes from a traditional lender.
The existing loan on the property is not "disturbed that is, there is no title search on it, no closing costs, and so on. As a loan, it just "stays where it is.
Lenders like wrap loans because they earn a higher return from such loans. Hence, lenders may be more willing to make you a wrap loan than a traditional mortgage loan.
A wrap loan is good for you when second mortgage loan rates are high. Why? Because the interest rate on a wrap loan is usually less than on a second mortgage loan.
Most wrap loans can usually be made faster than a conventional mortgage loan. This can save you time in your acquisition of the property.
You may be able to negotiate a balloon payment on a wrap loan. This means you pay interest only for a stated period often 10 years, after which the entire amount becomes due. During the 10-year period your monthly payments are lower, giving you a larger PCF. And, after 10 years, you may be able to renegotiate the mortgage. Or you may have sold the property at a high profit before the 10 years passed!
While a wrap loan is a junior mortgage (usually a second mortgage), it is not thought of in the usual negative terms associated with a second mortgage. Hence, a wrap loan is often more acceptable to both buyer and seller.
The wrap lender loans only the difference between the price less the down payment, less the first mortgage. For the garden apartment house earlier this would be: $275,000 price − $25,000 down payment − $100,000 existing First mortgage = $150,000. Hence, the wrap lender's cash outlay is less but the lender is receiving interest, and payments, on a larger amount. Lenders love this scenario!
Getting a wrap loan may allow you to complete a deal when conventional financing is not available. Lenders like wrap loans because the very fact that there's an existing first mortgage on a property means that the property was strong enough to support a loan from another lender. The earlier loan affirms a lender's decision to do a wrap. (Lenders think alike and look to other lenders to affirm their decisions.)
Think of a wraparound mortgage as one loan on top of another with the top loan being larger, dollar-wise, than the lower loan.

Once you have this idea in your mind you will be able to work effortlessly with wrap loans!

Negotiate to Keep Your Wrap Payment Low

You can if you put your negotiating "cap on get a lower monthly payment on your wrap loan. How?

Ask for a balloon wrap loan with a 10-year term.

Let's take a look at how this will increase your income from the garden apartment house earlier. Here are the numbers:

With a 10-year balloon loan you'll pay 0.06 × $250,000 = $15,000 per year in interest. This interest is fully tax-deductible to your real estate business.
Yourmonthlypayment to thewrap lenderwill be $15,000/12 = $1,250, compared to $1,500 you'll pay ona fully amortized (paid off ) loan.
Thus, your PCF income rises by $250 per month (= $1,500 − $1,250), giving a total monthly PCF of $277.33 + $250 = $527.33, or $6,327.96, compared to $3,327.96 with an amortizing loan.

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