Wrap-Around Loan

  

Wrap around loans are a type of mortgage. It’s where you have your initial mortgage and you get a second loan that “wraps around” your initial mortgage. So your mortgage is the chicken caesar and the additional financing is the tortilla wrap around it. Sounds delish, right? Just like the food, those in the mortgage biz just call it “wrap” for short.

A wrap-around loan comes into play when the seller of a property gives the buyer the secondary financing. This is an option for homebuyers who can’t afford a traditional home loan, or for those who can’t get a big enough home loan to purchase the house they have their eye on. Biting off more than you can chew, really.

When there’s no third-party financier (like a bank), it can be risky for the seller, so these aren’t too common. If something goes wrong, the seller is still ultimately on the hook for the house. But the seller can still benefit, because they could charge a higher interest rate and make some money. And also, it could help them sell their house if the housing market is slow at the time.

The wrap life is a risky one, but potentially one worth living under the right circumstances.

Related or Semi-related Video

Finance: What is a Wrap Account?31 Views

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Finance allah shmoop what is a rap account Okay yeah

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yeah inserted joke about eminem here a rap account with

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a w wraps into one annual fee All of the

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services you'd normally pay for ala carte at a given

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brokerage that is a broker might charge you a one

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percent rap account fee to manage all the assets you

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have with her in return for things like quote no

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fee unquote access to their proprietary mutual funds you get

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toe by the mutual funds no load and the quotes

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air there because there is a fee annually to manage

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the fund But at least this way there is no

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fee to buy into the fund or no load their

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god it see how that works The rap account can

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also include unlimited trading at quote no fee unquote as

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well like quotes or there again because there's usually a

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spread on each trade like you buy a twenty eight

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dollars and twenty seven cents and you sell a twenty

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eight dollars in nineteen cents So there's a seat since

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spread they're they're still making money on each trade There

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just isn't an incremental fee tacked on top of all

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That so your broker khun get that second home in

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the hamptons and that one percent feet Well that's based

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on the total amount invested with the broker got it

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So if you have a million dollars invested with them

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it's ten grand a year for that rap account fi

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system we'll wrap accounts often come with minimum investment levels

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well above those of a mutual fund like twenty five

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fifty grand or more But in having a one feet

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covers all approach a broker is not incentivized to churn

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the account or do really anything to generate commissions for

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themselves because there ain't any The only thing they're incentivized

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to dio is gather more of your assets or make

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your assets be worth more so they can keep going

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on the whole one percent dance Yeah the notion goes

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in theory anyway that if the broker helps client invest

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well over time the client will remain a loyal one

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and stay with that broker for a very long high

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margin to the brokers Time for many large brokerages rap

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accounts allowed their clients to be able to buy various

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flavors of funds mutual hedge or index at quote wholesale

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Prices unquote That is if the fund is a captive

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fund maintained by the brokerage The rap account allows the

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client to buy with no commissioner upfront charges which is

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kind of a nice nice deal for him Yeah quick

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example If jay z gives his broker one hundred million

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dollars under a rap account that charges one percent the

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broker will charge a million bucks a year in return

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for handling all of jay z's trading wiring and a

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whole bunch of other services got it One percent on

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the hundred million broker makes million bucks a year and

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if jay z also has a rap account you know

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with no w there Well there's always a chance Queen 00:02:45.555 --> [endTime] bee well pop in for a cameo

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