What is a "wraparound mortgage"?

A wraparound mortgage is indeed characterized as a financing method where a new mortgage wraps around an existing one. This type of mortgage allows the borrower to take out a loan that includes the balance of the existing mortgage while also providing new financing for additional funds needed.

In practical terms, the borrower makes payments on the wraparound mortgage, which encompasses both the old loan and the additional amount provided by the new lender. The seller essentially continues to pay the original mortgage while receiving separate payments from the new buyer, creating a situation where the buyer can take possession of the property without needing to pay off the original loan immediately. This structure can be beneficial in situations where traditional financing is difficult to obtain or when the existing mortgage terms are favorable compared to current market rates.

This option stands out as the correct one because it accurately captures the mechanics of how a wraparound mortgage functions in real estate transactions.