14. A seller wants $120000 for a home, and still owes $20000 of the original loan at 7% interest. The current interest rate is 12%. A buyer can pay $80000 down and wants to carry a mortgage that includes the seller's $20000 existing mortgage and the remaining $40000 for a total of $60000 at an interest rate of 10%. What kind of mortgage is this?
Answer: C
This is a wraparound mortgage.
A wraparound mortgage allows a buyer to assume the seller's existing mortgage while also borrowing additional funds, effectively wrapping the new loan around the existing mortgage. In this scenario, the buyer is taking on the seller's $20,000 mortgage and adding an additional $40,000, creating a total mortgage of $60,000.
A) blanket
A blanket mortgage covers multiple properties under one loan, which is not applicable in this situation. The transaction involves a single property and specific loans rather than a portfolio of properties, making this option incorrect.
B) equity
An equity mortgage typically refers to a loan secured against the equity of a property, which does not align with the situation described. The focus here is on the structure of the mortgage rather than the equity involved, hence this option is not correct.
C) wraparound
This option is correct as it describes a mortgage arrangement where the buyer's new loan wraps around the seller's existing mortgage. The buyer not only assumes the existing loan but also adds additional financing, making it a wraparound mortgage.
D) buydown
A buydown mortgage involves reducing the interest rate on the loan by paying upfront points, which is unrelated to the structure of the mortgage described in the question. Since the focus here is on the assumption of the existing loan and additional borrowing, this option is incorrect.
Conclusion
The wraparound mortgage is the definitive choice in this scenario as it accurately reflects the buyer's arrangement of assuming the seller's mortgage while incorporating additional financing. Other options fail to capture the structure and terms relevant to the transaction, highlighting why wraparound is the correct answer.