Beware of 'wraparound' mortgage
Despite benefits, low down payment doesn't justify risks
By Benny Kass, Monday, June 1, 2009.DEAR BENNY: I have a full-price offer on my duplex that involves a wraparound mortgage. I am a little leery of a small down payment with high-interest payments for a few years with a balloon at the buyer's refinance later. I'm told they are quite legal, but I really need to know the pros and cons. Can you enlighten me please? --Bobbie
DEAR BOBBIE: Here's how a wraparound mortgage works. Let's say that you sell your house for $500,000, and have an existing mortgage (deed of trust) on the property for $300,000. Title is transferred to your buyer, who pays you $10,000 in cash, and you take back a mortgage in the amount of $490,000. This is a second mortgage, because your existing mortgage is not paid off at the closing (escrow).
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