A method of acquiring additional financing on real estate by placing the additional funds in a secondary or junior position to the existing debt. As its name implies, a wraparound mortgage ‘wraps around’ an existing first mortgage plus the amount of the new secondary or junior lien. This method of obtaining additional capital is often used with commercial property where there is substantial equity in the property and where the existing first mortgage has an attractive low interest rate. By obtaining a wraparound, the borrower receives dollars based on the difference between current market value of the property and the outstanding balance on the first mortgage. Thus, the borrower reduces the equity and at the same time obtains an interest rate lower than would be possible through a normal second mortgage. The lender receives the leverage resulting from an interest rate on the wraparound greater than the interest paid to the holder of the first mortgage.
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