What is a wrap-around mortgage?

A wrap-around mortgage is a specific type of financing arrangement where a new mortgage is created that "wraps around" an existing mortgage. This occurs when a buyer finances the purchase of a property while the seller still has an existing mortgage on that property. The wrap-around mortgage essentially encompasses both the new loan and the existing one, allowing the buyer to make payments to the seller, who in turn uses those payments to cover their own mortgage obligations.

This approach can benefit both parties: the buyer may find it easier to qualify for the wrap-around mortgage, especially if the existing mortgage has favorable terms, while the seller can generate income from the interest paid on the new loan. Additionally, it allows buyers to avoid some of the closing costs associated with obtaining a new conventional mortgage because they deal directly with the seller.

The other options do not accurately describe a wrap-around mortgage; they refer to different types of loans or financial agreements that do not involve the unique structure of wrapping one loan around another.