When the seller retains the existing mortgage while lending additional money, what is this transaction called?

The transaction in which the seller retains the existing mortgage while lending additional money is known as a wrap-around contract. In this arrangement, the seller finances the purchase of the property by providing a second loan that "wraps around" the existing mortgage. This means that the buyer makes payments to the seller instead of directly to the lender of the original mortgage.

The key aspect of a wrap-around contract is that the seller continues to make payments on the existing mortgage while collecting payments from the buyer that are often higher than the existing mortgage payment. This structure allows for a seamless transaction for both the seller and the buyer, particularly in situations where the existing mortgage terms are more favorable than current market conditions.

In contrast, other options like land contracts and conditional assumptions have distinct characteristics. A land contract is a seller-financed arrangement where the buyer obtains equitable title and makes payments directly to the seller, who retains legal title until the purchase price is fully paid. A conditional assumption involves agreeing to assume responsibility for a loan under specific conditions, typically requiring approval from the lender. Lastly, the term pass-through refers to securities that pass on the cash flows from a specific loan or pool of loans to investors, rather than describing the arrangement between a seller and a buyer concerning real estate financing