81. A seller wants $120,000 for a home, and still owes $20,000 of the original loan at 7% interest. The current interest rate is 12%. A buyer can pay $60,000 down and wants to carry a mortgage that includes the seller's $20,000 existing mortgage and the remaining $40,000 for a total of $60,000 at an interest rate of 10%. What kind of mortgage loan is this?
Answer: C
This mortgage loan is a wraparound mortgage.
A wraparound mortgage allows the buyer to take over the existing mortgage of the seller while also borrowing additional funds to complete the purchase. In this case, the buyer assumes the seller's $20,000 existing mortgage and adds a new loan of $40,000, effectively creating a larger mortgage that encompasses both loans.
A) blanket
A blanket mortgage is used to secure multiple properties under one loan, which is not applicable in this scenario. Since the transaction involves only one property and the focus is on the existing mortgage and the additional amount needed, this option does not fit.
B) equity
An equity mortgage typically refers to a loan secured by the equity in a property, rather than the total purchase price or existing debt. In this case, the buyer is not taking out an equity loan; instead, they are incorporating the existing mortgage into a new payment structure, making this option incorrect.
C) wraparound
A wraparound mortgage allows a buyer to make payments on both the existing mortgage and the new loan to the seller. In this situation, the buyer is effectively combining the seller's $20,000 mortgage with their additional financing, which is the essence of a wraparound mortgage, making this option the correct choice.
D) buydown
A buydown mortgage involves paying an upfront fee to reduce the interest rate on a loan for a certain period. This is not relevant to the scenario presented, where the buyer is not attempting to lower the interest rate but rather structure a new loan that encompasses the existing mortgage, thus making this option incorrect.
Conclusion
The wraparound mortgage is the correct answer because it directly describes the arrangement where the buyer assumes the seller's existing mortgage while borrowing additional funds. The other options do not accurately represent the nature of the transaction, as they pertain to different types of financing structures or concepts that do not apply to the situation described.