What is a "wrap-around mortgage"?

A "wrap-around mortgage" is a financing arrangement that encompasses an existing mortgage along with new financing secured by the same property. This type of mortgage allows a buyer to purchase a property without paying off the original loan to the seller. Instead, the buyer makes payments to the seller based on the total of the existing mortgage and the additional amount financed. This means that the seller retains the existing mortgage in place, while the new loan "wraps around" it.

This arrangement can be beneficial for both parties; the seller can receive a steady income stream while retaining the current mortgage, and the buyer may find it easier to qualify for the wrap-around mortgage rather than attempting to obtain traditional financing. It also allows the buyer to take advantage of potentially lower interest rates from the existing loan.

The other options do not accurately capture the nature of a wrap-around mortgage. For instance, a loan covering only property taxes describes a tax lien, while an adjustable-rate mortgage involves variable interest rates which is unrelated to the wrap-around concept. Lastly, a lease-to-own payment structure is focused on renting with the option to buy rather than combining financing approaches like the wrap-around mortgage does.