An underlying mortgage is the primary mortgage in a wraparound mortgage arrangement. In this type of transaction, a lender takes on the responsibility for an existing mortgage while providing a new loan that "wraps around" the original mortgage. This allows the borrower to consolidate their debts and potentially benefit from better terms without needing to refinance the original loan.
The term underlying mortgage is commonly used in real estate law, particularly in financing arrangements involving wraparound mortgages. Legal professionals may encounter this term when drafting agreements or advising clients on mortgage options. Users can manage some aspects of these transactions themselves using legal templates from US Legal Forms, but it is advisable to consult an attorney for complex arrangements.
Here are a couple of examples of abatement:
Example 1: A homeowner has a mortgage of $150,000 with a 5% interest rate. They want to sell their home but still owe on the mortgage. A buyer agrees to a wraparound mortgage for $200,000 at a 6% interest rate, allowing the buyer to make payments to the seller, who continues to pay the original lender.
(hypothetical example)
Examples of state differences (not exhaustive):
| State | Wraparound Mortgage Regulations |
|---|---|
| California | Wraparound mortgages are permitted but must comply with specific disclosure requirements. |
| Texas | Wraparound mortgages are allowed, but lenders must follow strict guidelines to protect consumers. |
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
| Term | Definition | Difference |
|---|---|---|
| Wraparound Mortgage | A mortgage that wraps around an existing mortgage. | Underlying mortgage is the original mortgage in this arrangement. |
| Refinancing | Replacing an existing mortgage with a new one. | Refinancing pays off the original mortgage, while a wraparound mortgage does not. |
If you are considering a wraparound mortgage, it is essential to understand the implications of the underlying mortgage. You may want to:
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A wraparound mortgage is a new mortgage that includes the existing mortgage balance and additional funds.