Massachusetts Real Estate License Practice Test

What distinguishes a Wraparound Mortgage?

1. It consolidates multiple loans into one

2. It allows the lender to assume an existing mortgage

3. It offers lower interest rates over time

4. It is backed by government guarantees

The correct answer is: It allows the lender to assume an existing mortgage

A Wraparound Mortgage is particularly characterized by its structure that allows a new loan to encompass or "wrap around" an existing mortgage. This means that the borrower makes payments to the new lender, who in turn continues to make payments on the existing mortgage. This arrangement can be beneficial for buyers who may not be able to qualify for a conventional loan or who wish to take advantage of favorable terms on the existing mortgage. In this case, the correct choice highlights the ability of the new lender to assume an existing mortgage, allowing for a streamlined process where the new financing does not require requalification for the existing debt. This can lead to a more favorable situation for buyers and sellers, as it can facilitate a sale without the need to pay off the current mortgage immediately. The other options, while they touch on important aspects of financing, do not directly relate to the defining characteristic of a Wraparound Mortgage. For instance, consolidating multiple loans into one pertains more to a consolidation loan scenario rather than the unique structure presented in a Wraparound Mortgage. Lower interest rates over time may be a benefit in some cases, but they do not specifically define a Wraparound. Similarly, government guarantees come into play with certain types of loans but are not a characteristic of Wraparound Mort