What is a wrap-around mortgage?

A wrap-around mortgage is a financing arrangement where a new mortgage is created that includes an existing mortgage and adds additional financing that covers the remaining purchase price of a property. In this structure, the borrower makes payments on the wrap-around loan to the new lender, who then uses part of those payments to cover the existing mortgage. This allows the borrower to take advantage of potentially more favorable terms or rates on the new loan while still honoring the original loan obligations.

This type of mortgage is particularly beneficial in situations where interest rates have increased since the original mortgage was secured, as the wrap-around mortgage can allow the buyer to finance the property without completely refinancing the existing debt. It can also simplify transactions where the seller aims to provide easy financing to a buyer while retaining the original mortgage, thus creating a more attractive option in the real estate market.