Legal Definitions - all-inclusive mortgage

An all-inclusive mortgage, also commonly known as a wraparound mortgage, is a type of junior loan that incorporates an existing, underlying mortgage. In this arrangement, a new lender (often the seller of the property) provides a loan to the borrower for an amount that includes the unpaid balance of the original mortgage, plus any additional funds needed. The borrower then makes payments on this new, larger all-inclusive mortgage to the wraparound lender. The wraparound lender, in turn, is responsible for continuing to make payments on the original, underlying mortgage to the original lender.

This structure allows the original mortgage to remain in place, which can be advantageous if it has a favorable interest rate or terms. It also provides a way for sellers to offer financing to buyers, or for investors to acquire properties, without immediately paying off the existing debt.

• Example 1: Seller-Financed Home Sale

  Maria owns a house with an existing mortgage balance of $200,000 at a 3.5% interest rate. She wants to sell the house to Tom for $350,000. Tom has a good down payment but is having difficulty securing a traditional bank loan for the remaining $300,000 due to recent changes in lending standards. To facilitate the sale, Maria agrees to provide Tom with an all-inclusive mortgage for $300,000 at a 5.0% interest rate.

  How it illustrates the term: Tom makes his monthly mortgage payments directly to Maria. Maria then uses a portion of those payments to continue paying her original $200,000 mortgage to her bank, keeping the difference as profit. This is an all-inclusive mortgage because Maria's new loan to Tom "wraps around" her existing mortgage, allowing her original loan to stay in place while providing new financing to Tom.

• Example 2: Commercial Property Investment

  An investor, Alex, wants to purchase a small office building for $1 million. The current owner, Brenda, has an existing mortgage on the property with a balance of $700,000 at a very attractive 4.0% fixed interest rate. Brenda is willing to sell but prefers not to pay off her low-interest loan prematurely. Alex agrees to purchase the property and Brenda offers him an all-inclusive mortgage for $1 million at 6.0% interest.

  How it illustrates the term: Alex makes his mortgage payments to Brenda. Brenda continues to make payments on her original $700,000 mortgage to her lender from the funds she receives from Alex. This is an all-inclusive mortgage because Brenda's new loan to Alex encompasses her existing mortgage, allowing her to retain the benefits of her favorable original loan while still selling the property and providing financing.

• Example 3: Buyer with Limited Credit History

  Sarah, a recent graduate, wants to buy a condo from John for $250,000. John has an existing mortgage balance of $150,000 at 4.25%. Sarah has a stable job and a down payment, but her limited credit history makes it challenging to qualify for a conventional mortgage for the full $200,000 she needs. John, eager to sell, offers Sarah an all-inclusive mortgage for $200,000 at 5.5% interest.

  How it illustrates the term: Sarah makes her monthly payments to John. John then takes a portion of those payments to cover his original mortgage payment to his bank, keeping the remaining interest. This arrangement is an all-inclusive mortgage because John's financing to Sarah includes his existing mortgage, providing a solution for Sarah to purchase the property without disturbing John's original loan.