Which loan type enables additional financing while the first loan remains in effect?

Study for the Rhode Island Real Estate Sales Test. Access multiple choice questions with detailed explanations. Prepare effectively and ace your exam with confidence!

In the context of real estate financing, a wraparound loan is a type of mortgage that enables a borrower to obtain additional financing without having to pay off the existing first mortgage. This arrangement involves the new lender providing a loan that "wraps around" the existing mortgage.

The borrower continues to make payments on the original first mortgage, while also making payments to the second lender under the terms of the wraparound loan. This structure allows for the possibility of obtaining more funds without needing to refinance or close out the first loan, which can be particularly advantageous if the borrower has favorable terms or interest rates on the existing mortgage.

Wraparound loans can be beneficial in scenarios where property values have increased, and the borrower wishes to tap into their equity without disturbing their existing mortgage. This feature distinguishes wraparound loans from other types of financing options where existing loans might need to be settled or replaced.

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