What is the main characteristic of a wraparound mortgage?

A wraparound mortgage is primarily distinguished by its characteristic of allowing the borrower to take a new loan that "wraps around" the existing mortgage on the property. This new loan includes the total amount of the outstanding balance on the existing mortgage along with any additional funds the borrower requires. This structure enables the borrower to effectively have a single loan while the original mortgage remains in place, which is beneficial for various reasons, such as not triggering the due-on-sale clause that could be triggered by paying off the existing mortgage.

This arrangement facilitates continued payments on the existing mortgage while also allowing the seller (who holds the existing mortgage) to receive payments from the buyer through the wraparound mortgage. The buyer benefits from this because they can negotiate terms that might be more favorable than what a traditional lender might offer, all without disturbing the existing mortgage agreement. Thus, this characteristic defines the essence of a wraparound mortgage, making it a useful tool in real estate transactions, particularly in situations where buyers may not qualify for traditional financing.