What does a "wrap-around mortgage" enable?

A wrap-around mortgage is a type of financing arrangement where the seller of a property carries back a loan that "wraps" around the existing mortgage. This setup allows the buyer to make payments directly to the seller, who then continues to make payments on the original mortgage. The seller's mortgage remains in place, and the new loan is a combination of the existing loan plus any additional funds needed.

By enabling the buyer to make payments to the seller, the seller can benefit from an ongoing income stream even while they are still responsible for servicing the original mortgage. This can be particularly advantageous in situations where interest rates have risen, allowing the seller to potentially charge a higher interest rate than what they are currently paying on their existing loan. This arrangement can be beneficial for buyers who may not qualify for traditional financing, as it provides them an opportunity to secure a property without going through the conventional mortgage process.

Other options, such as immediate payments to the lender, lower interest rates, or a one-time payment of the mortgage balance, do not accurately describe the function or benefit of a wrap-around mortgage. The nature of a wrap-around loan is predominantly about the relationship and payment structure between the buyer and seller rather than direct interactions with lenders in these ways.