A wraparound mortgage is a mortgage that includes in its balance -- an underlying mortgage. Rather than having distinct and separate first and second mortgages, a wraparound mortgage includes both. For example, you might have an existing first mortgage of $100,000 at 6 percent interest. A second mortgage can be arranged for $50,000 at 10 percent interest. Instead of getting that second mortgage, the borrower arranges a wraparound for $150,000 at 8 percent.
The first mortgage of $100,000 stays intact. The borrower pays the wraparound lender one payment on the $150,000 wraparound, and the wraparound lender remits the payment on the first mortgage to the first mortgage lender.