What does the wrap-around loan structure involve?

The wrap-around loan structure involves taking over an existing loan while creating a new mortgage. In this type of financing arrangement, the seller holds two loans: the original mortgage and a new mortgage that "wraps around" the existing loan. This allows the buyer to make payments to the seller based on the terms of the new loan, which typically includes the original loan's payments plus an additional amount. The seller continues to make the original loan payments to the lender, effectively allowing the buyer to assume the existing loan's terms without directly refinancing it.

This structure can be advantageous in situations where interest rates have risen since the original mortgage was taken out, as the wrap-around loan may allow the buyer to benefit from the lower rate while providing the seller with a cash flow from the new mortgage payment. It is essential to ensure that wrap-around loans are structured in compliance with applicable laws, as they can have complexities related to due-on-sale clauses and other regulations pertaining to existing mortgages.