Wrap-Around Loan
Wrap around loans are a type of mortgage. It’s where you have your initial mortgage and you get a second loan that “wraps around” your initial mortgage. So your mortgage is the chicken caesar and the additional financing is the tortilla wrap around it. Sounds delish, right? Just like the food, those in the mortgage biz just call it “wrap” for short.
A wrap-around loan comes into play when the seller of a property gives the buyer the secondary financing. This is an option for homebuyers who can’t afford a traditional home loan, or for those who can’t get a big enough home loan to purchase the house they have their eye on. Biting off more than you can chew, really.
When there’s no third-party financier (like a bank), it can be risky for the seller, so these aren’t too common. If something goes wrong, the seller is still ultimately on the hook for the house. But the seller can still benefit, because they could charge a higher interest rate and make some money. And also, it could help them sell their house if the housing market is slow at the time.
The wrap life is a risky one, but potentially one worth living under the right circumstances.
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