What is the main characteristic of a wraparound mortgage?

A wraparound mortgage is characterized primarily by its structure, where it encompasses the existing mortgage while simultaneously providing new financing to the borrower. This type of mortgage allows the seller to create a new loan that wraps around the existing mortgage, effectively covering the total amount owed on both the old mortgage and the new financing. As a result, the buyer makes payments to the seller, who then uses a portion of those payments to cover the obligations of the existing mortgage.

This arrangement is particularly beneficial in situations where the existing mortgage has a favorable interest rate or terms that the buyer wishes to leverage. The seller maintains the original loan while securing a separate, typically higher-interest loan from the buyer, giving them the ability to profit from the difference in interest rates.

While other options mention related concepts, they don't capture the fundamental essence of a wraparound mortgage. For instance, refinancing is not the primary focus, as the existing loan remains in place; obtaining a loan from a third party does not represent the direct nature of the wraparound structure; and the terms of the loan can vary, so it is not necessarily fixed for the entire duration. Understanding these nuances helps clarify why the wraparound mortgage covers both the old and new amounts, making it a unique financial tool in real estate