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Financing term

Wraparound Mortgage

A new loan that wraps around an existing mortgage, with the borrower making one payment that covers both.

Why Wraparound Mortgage matters on the exam

This term belongs to Financing. The questions below are real items from Freehold's bank that use it - each one cites its source.

Exam questions using Wraparound Mortgage

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A developer financing several lots under a single loan secured by all of the parcels would use a:

  1. Package mortgage
  2. Wraparound mortgage
  3. Blanket mortgage
  4. Bridge loan
Show answer & explanation

Blanket mortgage — A blanket mortgage covers more than one parcel of real property under a single loan, commonly used by developers, and typically includes a partial release clause allowing individual lots to be released as sold.

Source: PSI National Real Estate Exam Content Outline §4 Financing

A wraparound mortgage is a financing arrangement in which:

  1. The buyer obtains an entirely new first mortgage that pays off the seller's existing loan
  2. A new loan encompasses (wraps around) an existing loan that remains in place, with the new lender collecting payments and forwarding payments on the underlying loan
  3. The seller retains legal title to the property until the full purchase price has actually been paid in complete satisfaction of every single term stated clearly in the contract
  4. The buyer assumes the existing loan and the seller is fully released
Show answer & explanation

A new loan encompasses (wraps around) an existing loan that remains in place, with the new lender collecting payments and forwarding payments on the underlying loan — In a wraparound mortgage, a new loan is created for the full remaining balance owed, wrapping around and including the original loan, which stays in place while the wraparound lender makes payments on it.

Source: PSI National Real Estate Exam Content Outline §4 Financing

A wraparound mortgage arrangement is most likely to be used when:

  1. The existing loan carries a due-on-sale clause that will definitely be enforced
  2. The seller wants to immediately pay off the existing loan
  3. The existing loan has a favorable interest rate and can remain in place without triggering acceleration
  4. The buyer qualifies easily for conventional financing
Show answer & explanation

The existing loan has a favorable interest rate and can remain in place without triggering acceleration — Wraparound financing works best when the underlying loan carries a favorable rate and either has no due-on-sale clause or the lender is unlikely to enforce it, letting the seller profit from the rate spread.

Source: PSI National Real Estate Exam Content Outline §4 Financing

Related Financing terms

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