What type of mortgage is a second mortgage that remains subordinate while the borrower makes a single monthly payment?

A wraparound mortgage is a type of financing that allows a borrower to obtain a second mortgage while still making a single monthly payment that encompasses both the original first mortgage and the new second mortgage. This structure enables the borrower to manage payments more easily by consolidating what would typically be multiple payment obligations into one.

In essence, a wraparound mortgage "wraps around" the existing loan, allowing the lender of the second mortgage to receive payments based on the balance of both the first and second mortgage. The borrower benefits from potentially better terms or lower interest rates, and this can be a useful strategy in situations where the first mortgage has a low interest rate, making refinancing less appealing.

This arrangement contrasts with other types of mortgages that do not operate in this way, such as balloon mortgages, which typically involve a large final payment after a series of smaller payments. Fixed-rate and adjustable-rate mortgages refer to the nature of the interest rates but do not specifically describe the relationship between the first and second loans in the manner that a wraparound mortgage does.