Question

A seller has an assumable $80,000 loan and is selling a property for $125,000. If the seller makes a $125,000 loan to the purchaser but continues making the payments on the original loan himself, what type of loan did the seller make to the purchaser?

a) Package mortgage
b) Wraparound mortgage
c) Balloon mortgage
d) Adjustable-rate mortgage

Answer 1

The seller provided the purchaser with a wraparound mortgage, where the new $125,000 loan encompasses the existing $80,000 loan with the seller making payments on the original loan.

Step-by-step explanation:

The type of loan that the seller made to the purchaser in this scenario is known as a wraparound mortgage. A wraparound mortgage is a form of secondary financing where the new mortgage is made to encompass (or "wrap around") the existing loan, while the seller continues to make payments on the original loan. In this case, the seller is offering the purchaser a $125,000 loan, while still being responsible for the original $80,000 loan.