What is a wrap-around mortgage?

A wrap-around mortgage is a specific type of seller financing that involves the seller providing financing to the buyer while still having an existing mortgage on the property. In this arrangement, the seller creates a new loan that "wraps around" the existing mortgage. The buyer makes payments to the seller based on this new loan, which includes both the existing mortgage balance and any additional amount agreed upon for the purchase price.

The seller then uses the payments received from the buyer to continue paying off the original mortgage. This structure not only allows the buyer to purchase a property even if they cannot secure traditional financing but can also benefit the seller, who may be able to charge a higher interest rate on the wrap-around mortgage than they are paying on their current loan. This type of financing can be particularly useful in situations where conventional lending may be difficult to obtain or when the buyer wants to avoid strict lending requirements.