Wraparound Mortgage

A wraparound mortgage is a type of loan that is used to refinance an existing mortgage. The new loan is typically for a higher amount than the existing loan, and the borrower uses the proceeds from the new loan to pay off the old loan. The wraparound lender then collects payments from the borrower on the new loan, and makes payments on the old loan.

There are two main types of wraparound mortgages:

• Purchase wraparound mortgages: These mortgages are used to finance the purchase of a property. The borrower uses the proceeds from the new loan to pay off the existing loan and purchase the property.
• Refinance wraparound mortgages: These mortgages are used to refinance an existing mortgage. The borrower uses the proceeds from the new loan to pay off the existing loan and lower their monthly payments.

Wraparound mortgages can be beneficial for borrowers who have equity in their homes and want to lower their monthly payments. However, these loans can also be risky, as the borrower is responsible for both the new loan and the old loan.

Here are some of the pros and cons of wraparound mortgages:

Pros:

• Wraparound mortgages can allow borrowers to lower their monthly payments.
• Borrowers can use the equity in their homes to finance other purchases, such as a new car or a business.
• Wraparound mortgages can be used to consolidate debt.

Cons:

• Wraparound mortgages can be complex and difficult to understand.
• Borrowers are responsible for both the new loan and the old loan.
• Wraparound mortgages can be expensive, as the borrower may have to pay higher interest rates.

If you are considering a wraparound mortgage, it is important to speak with a qualified financial advisor to weigh the pros and cons carefully.