Wrap-Around Loan

A wrap-around loan is a type of mortgage that is used to refinance an existing loan. The new loan is typically for a higher amount than the original loan, and the borrower uses the extra money to pay off the old loan. The wrap-around loan is then repaid with the borrower's monthly payments.

There are a few advantages to using a wrap-around loan. First, it can allow the borrower to get a lower interest rate on the new loan. This is because the lender is taking on the risk of the old loan, which can lower the interest rate on the new loan. Second, a wrap-around loan can allow the borrower to make smaller monthly payments. This is because the borrower is only paying off the difference between the new loan amount and the old loan amount.

However, there are also some disadvantages to using a wrap-around loan. First, the borrower may have to pay points or fees to the lender. These fees can add to the cost of the loan. Second, the borrower may have to pay a higher interest rate on the new loan. This is because the lender is taking on the risk of the old loan, which can increase the interest rate on the new loan. Third, the borrower may have to pay off the old loan early. This is because the wrap-around loan is typically for a shorter term than the old loan.

Overall, a wrap-around loan can be a good option for borrowers who want to refinance an existing loan. However, it is important to weigh the pros and cons of this type of loan before making a decision.

Here are some additional details about wrap-around loans:

* The borrower typically makes monthly payments to the lender of the wrap-around loan. These payments include principal and interest on the new loan, as well as any payments that are due on the old loan.
* The borrower may be able to sell the property that is being financed with the wrap-around loan. However, the lender of the wrap-around loan will typically have a lien on the property, which means that the lender will be repaid before any other creditors.
* If the borrower defaults on the wrap-around loan, the lender of the wrap-around loan may foreclose on the property. This means that the lender can take ownership of the property and sell it to repay the loan.

Wrap-around loans can be a complex financial product, so it is important to speak with a qualified financial advisor before making a decision about whether or not to use this type of loan.