Wraparound mortgages are typically done by allowing the person who is selling a home to provide a mortgage to the person buying the home. These loans are most commonly used when the first mortgage on the home is an assumable loan. However, in some cases, they may be used on non-assumable loans with the original lenders permission. The total wraparound mortgage amount is the full amount of the existing loan plus the new amount that is borrowed. One payment is made by the borrower to the seller and the seller then makes the payment on the original loan. Typically, the interest rate is higher than the interest rate that is on the existing mortgage. For sellers, the higher-yield on the mortgage makes this an attractive option when selling their home. When the primary mortgage is a non-assumable loan, the lender must agree to this scheme or there is a risk they will call the loan requiring the loan to be paid in full.
