What is a wrap-around mortgage?

• A. A loan that replaces the existing mortgage
• B. A new loan that wraps around an existing mortgage
• C. A loan secured only by personal property
• D. A loan with no interest

Answer: (C)

Wrap-around mortgage is a form of seller financing where a new loan is created that “wraps around” an existing mortgage on the property. The new loan amount covers the balance of the existing loan plus additional funds, and the seller continues to make payments on the original loan while the buyer makes payments on the wrap loan to the seller. The property serves as collateral for both loans, and the wrap loan is subordinate to the existing mortgage. This lets the buyer obtain financing without going through a traditional lender, but it does involve ongoing obligations for the seller and potential issues with the existing lender’s terms. It is not a loan that replaces the existing mortgage, it is not secured only by personal property, and it is not a no-interest loan.