What does a wraparound mortgage involve?

A wraparound mortgage involves structuring a new mortgage that encompasses an existing mortgage, creating a single financial obligation. This type of arrangement allows the new lender to take over the payments for the existing mortgage while simultaneously providing additional financing to the borrower. It effectively "wraps around" the original mortgage, and the borrower makes payments to the new lender instead of the original lender.

This financial strategy can be beneficial for both parties: the borrower can avoid the hassle of paying off the existing loan first while gaining access to needed funds, and the new lender may find opportunities to earn interest from the combination of loans. Wraparound mortgages are particularly useful in situations where interest rates are rising or for buyers who cannot easily qualify for new loans.

The other options describe different scenarios that do not encompass the specific mechanics of a wraparound mortgage.