What defines a wraparound mortgage?

A wraparound mortgage is defined as a type of financing where a new mortgage is created that "wraps around" an existing mortgage. This structure allows the borrower to secure a new loan while still maintaining their original mortgage. The new lender effectively makes payments on behalf of the borrower to the original mortgage lender, while the borrower pays the new lender at a higher interest rate. This arrangement can be particularly beneficial in situations where the original mortgage has a lower interest rate, enabling the borrower to take advantage of financing without needing to refinance or pay off the original loan.

In this context, an additional mortgage is obtained while keeping the original mortgage intact, which distinguishes a wraparound from other types of mortgages where one loan replaces another. It provides flexibility for borrowers who may not want to disturb their existing loan agreements or who may be unable to qualify for a standard refinancing option due to credit issues or other factors.