What is a wraparound mortgage?

A wraparound mortgage is a secondary financing option that allows a new mortgage to "wrap around" an existing mortgage. This type of arrangement is particularly beneficial when the existing mortgage has a lower interest rate than current market rates. In a wraparound mortgage, the borrower makes payments to the new lender, who then makes the payments on the existing mortgage. This structure allows the borrower to access additional financing without having to pay off or refinance the existing mortgage.

This financing method can simplify the borrowing process, especially for buyers who may have difficulty qualifying for a traditional loan or who want to take advantage of favorable terms on an existing mortgage. It also provides a way for sellers to offer financing options that may attract more buyers.

Other options, such as a loan for new home buyers, a mortgage that combines multiple loans, or a loan for purchasing land, do not accurately define the concept of a wraparound mortgage, as they do not capture the specific nature of financing involving an existing mortgage being retained while securing a new loan.