What is a wrap-around mortgage?

A wrap-around mortgage is a specific financing arrangement that allows a borrower to take on a new loan while simultaneously wrapping around an existing mortgage. This type of mortgage effectively combines the existing loan balance with the new financing needed to make a purchase or refinance.

In practice, the new lender makes payments to the original lender as well as collects payments from the borrower. The advantage of this structure is that it can enable a buyer to finance a property without having to pay off the original loan first, allowing for potentially easier access to funds and a smoother transaction process. Additionally, it can be beneficial in circumstances where the existing mortgage has a favorable interest rate that the buyer wants to maintain while obtaining additional financing under more flexible terms.

In contrast, the other options presented do not accurately define a wrap-around mortgage. For instance, offering lower interest rates does not inherently describe the wrap-around concept, and a requirement for no down payment or restrictions to investment properties do not characterize this particular mortgage arrangement either.