What is a holding mortgage?

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A holding mortgage, also known as a wraparound mortgage or an all-inclusive trust deed, is a type of financing arrangement in real estate transactions. It involves the seller of a property acting as the lender and providing a mortgage to the buyer, who then makes payments to the seller instead of a traditional lender. This article will delve deeper into the concept of a holding mortgage, explaining its structure, benefits, and potential risks.

Structure of a Holding Mortgage

A holding mortgage is structured in a way that allows the buyer to make payments to the seller, who in turn uses a portion of those payments to cover the existing mortgage on the property. The seller essentially becomes the lender, collecting payments from the buyer and using them to pay off their own mortgage. This arrangement is commonly used when the seller has an existing mortgage with a favorable interest rate and wants to pass on this benefit to the buyer.

The terms of a holding mortgage can vary depending on the agreement between the buyer and the seller. The interest rate, repayment period, and other terms are negotiated between the parties involved. It is essential for both parties to clearly outline these terms in a written agreement to avoid any misunderstandings or disputes in the future.

Benefits of a Holding Mortgage

Flexibility: One of the significant advantages of a holding mortgage is the flexibility it offers to both the buyer and the seller. Since the terms of the mortgage are negotiated directly between the parties, they can be customized to meet their specific needs and financial situations. This flexibility can be particularly beneficial for buyers who may not qualify for traditional financing due to credit issues or other reasons.

Lower Closing Costs: Another advantage of a holding mortgage is that it can result in lower closing costs compared to traditional mortgage financing. In a typical real estate transaction, the buyer is responsible for paying various fees and closing costs associated with obtaining a mortgage. With a holding mortgage, these costs can be significantly reduced or even eliminated, as there is no need for a separate lender involved in the transaction.

Quicker Closing Process: Since a holding mortgage does not involve a traditional lender, the closing process can be faster and more streamlined. There is no need to go through the lengthy approval process typically required by banks or mortgage lenders. This can be particularly advantageous in situations where a quick sale is desired or when time is of the essence.

Potential Risks of a Holding Mortgage

While a holding mortgage can offer benefits, it is important to consider the potential risks associated with this type of financing arrangement. Some of the risks include:

Due-on-Sale Clause: The existing mortgage on the property may contain a due-on-sale clause, which allows the lender to demand full repayment of the loan if the property is sold. In such cases, the seller may need to pay off the existing mortgage in full before entering into a holding mortgage agreement with the buyer.

Default and Foreclosure: If the buyer fails to make payments on the holding mortgage, the seller may be at risk of defaulting on their own mortgage. This could potentially lead to foreclosure proceedings and the loss of the property for both parties involved.

Legal and Regulatory Considerations: It is crucial for both the buyer and the seller to seek legal advice and understand the legal and regulatory implications of a holding mortgage. Each jurisdiction may have specific laws and regulations governing this type of financing arrangement, and compliance is essential to avoid legal issues in the future.


A holding mortgage can be an alternative financing option in real estate transactions, allowing the seller to act as the lender and providing flexibility and cost savings to both parties involved. However, it is essential to carefully consider the potential risks and seek professional advice before entering into a holding mortgage agreement. Clear communication, thorough documentation, and compliance with legal and regulatory requirements are crucial for a successful and secure transaction.


– Investopedia: www.investopedia.com/terms/w/wraparoundmortgage.asp
– The Balance: www.thebalance.com/what-is-a-wraparound-mortgage-315670
– LegalMatch: www.legalmatch.com/law-library/article/wraparound-mortgages.html