What characterizes a "wraparound mortgage"?

A wraparound mortgage is characterized by its ability to allow a buyer to assume an existing mortgage while also providing additional financing to cover the purchase price exceeding that existing mortgage. In this arrangement, the seller maintains the original mortgage but creates a new loan that "wraps around" the previous one. The buyer makes payments on the wraparound mortgage, which typically includes both the amount due on the existing loan and any additional financing.

This type of financing is especially useful in scenarios where interest rates are rising or the terms of the original mortgage are favorable, allowing the buyer to benefit from the terms of the existing mortgage while facilitating the purchase. It enables the buyer to avoid having to secure an entirely new mortgage immediately, which can be beneficial in competitive real estate markets. Understanding this structure is important for real estate transactions as it impacts how deals are financed and negotiated.