New York State Real Estate Salesperson Licensing Exam

What is a wrap-around mortgage?

1. A mortgage that combines multiple loans

2. A new mortgage that wraps around an existing smaller mortgage

3. A mortgage used for purchasing land

4. A government-backed mortgage option

The correct answer is: A new mortgage that wraps around an existing smaller mortgage

A wrap-around mortgage is best described as a new mortgage that wraps around an existing smaller mortgage. This financing arrangement allows a borrower to take out a new loan that includes the balance of the existing mortgage as part of the new loan amount. This can be particularly beneficial for buyers who may want to take advantage of favorable terms of the existing mortgage, such as lower interest rates, while also obtaining additional funds for purchasing the property. In this context, the new mortgage is typically provided by the seller, and the buyer makes payments to the seller, who then uses a portion of these payments to cover the existing mortgage. This arrangement allows for continuity of the existing loan while facilitating a smoother transaction for both the buyer and seller. Other options do not accurately reflect the definition of a wrap-around mortgage. For instance, while some mortgages can combine multiple loans, that concept doesn't specifically capture the essence of a wrap-around mortgage. Similarly, mortgages used for purchasing land or government-backed mortgage options refer to different financing scenarios not related to the wrapping concept described here.