In financing terms, what is a wraparound mortgage considered?

A wraparound mortgage is classified as secondary financing because it involves the creation of a new loan that “wraps around” an existing mortgage. This type of financing allows a buyer to make payments on the new loan while the seller continues to pay on the original mortgage, which remains in place.

In this arrangement, the seller provides the buyer with a loan that includes the existing mortgage balance plus any additional amount needed. The seller receives the buyer's monthly payments, uses those to cover the original mortgage, and retains any extra income from the buyer's payments as profit. This structure positions the wraparound mortgage as a form of financing that exists alongside the primary mortgage rather than replacing it, solidifying its status as secondary financing.

Understanding this classification is important when navigating financing options, particularly in real estate transactions that involve creative financing solutions.