Bob is the mortgagor on a 5 million 6 interest-only first


Question: Bob is the mortgagor on a $5 million, 6%, interest-only first mortgage on the property at 1000 North Main. The loan has another five years to run before it comes due, and it has no due-onsale clause. Since Bob bought the property, it has increased in value from $7 million to $10 million, while interest rates have increased from the 6% that had prevailed to 8% today. Sue now wants to buy the property from Bob for $10 million, but she has only $2 million available for a down payment and can only afford 7% interest on an $8 million loan. Describe how Bob can clench this deal by extending Sue a wraparound loan as a second mortgage.

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Finance Basics: Bob is the mortgagor on a 5 million 6 interest-only first
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