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MODULE 13
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WRAP LOANS
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w What is a Wrap Loan? w Risk Analysis of Wraps w Examples of Wrap Loans
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What is a Wrap Around Mortgage w Benefits from Existing Low Interest Rate Loans w Benefits Borrower and Wrap Lender w Takes Advantage of Existing Lender
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Simple Wrap Example: Purchase of $100,000 Property w Seller Has Existing First Mortgage: $40,000 Balance, Assumable Loan 6% Interest Rate $3,439 Annual PMT w Buyer has $20,000 Down PMT
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Market Financing Options w 12% Interest Rate For Fixed New First Mortgage for 80% LTV w 14% Interest Rate for Second Mortgage for $40,000 with Assumption of Existing First Loan w Wrap Loan Option Possible?
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Analysis of “Loan Options” w New First WRAP Loan @ 10% for $80,000 w Annual PMT = $9,264 w C/C =
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Second Mortgage $3,439 = Assumed Loan PMT $5,969 = Annual PMT for Second $40,000 @ 14% $9,408Total Combined PMT
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Risk Analysis of Wrap Around Loan w Legal Implications Usury Laws Restrictive Loan Clauses Mortgage Registry w Borrower-Lender Implications Lender Risk Borrower Risk Escrow Agents? Tax Implications: NIE?
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Types of WRAPS w Simultaneous Term w Partial Amortization (Balloon) w Extended Term w Extended Term – No Funds Advanced! w Short-term Wrap
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After Tax Example 1. An Investor Buys a Parcel for $650,000. 2. $130,000 Cash Down Payment 3. Existing First is 5 Years Old Original Balance = $365,000 @12% Per Annual Interest with Annual PMT = $47,394 Loan is Fully Amortized in 25 Years
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After Tax Example Evaluate Wrap Loan for 80% of Purchase Price New Loan Balance = 520,000 Interest Rate = 14% Other Loan Terms = 15 Years, Due in 5 Years PMT = $84,000 Assume 50% Tax Bracket
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