Massachusetts Real Estate License Practice Test

What does a Wraparound Mortgage typically involve?

1. Issuing a new mortgage for a lower amount

2. Creating a separate loan entirely

3. Combining an existing mortgage with a new one

4. Securing a mortgage for purchase of land only

The correct answer is: Combining an existing mortgage with a new one

A Wraparound Mortgage typically involves combining an existing mortgage with a new one. In this arrangement, the seller finances the buyer and the existing mortgage remains in place while the buyer makes payments to the seller, who then continues to pay the original lender. This type of mortgage "wraps around" the existing loan, allowing the buyer to obtain financing without having to pay off the current loan immediately. This structure can be beneficial in certain scenarios, such as when interest rates are rising, and it allows the seller to potentially profit from the difference in interest rates between the original mortgage and the new financing provided to the buyer. It also simplifies transactions for buyers who may not qualify for traditional financing due to stricter lending guidelines. The other options do not accurately describe the nature of a Wraparound Mortgage. Issuing a new mortgage for a lower amount or creating a separate loan entirely does not reflect the essence of uniting the existing loan with a new one in a wraparound structure, while securing a mortgage for the purchase of land only does not encompass the broader financial arrangement inherent in a Wraparound Mortgage.