In a wrap-around mortgage the seller keeps their existing low-rate loan and lends the buyer the full price on a new note. The seller collects the wrap payment, forwards the underlying payment, and keeps the spread. Enter your terms to see exactly what that spread is worth.
The wrap note covers the full price minus the down payment; you keep paying the existing loan from the buyer's payment.
| Sale Price | Existing Loan | Wrap Rate | Wrap Payment | Existing Payment | Monthly Spread | Yield on Equity |
|---|---|---|---|---|---|---|
| $400,000 | $250,000 @ 3.5% / 20y | 6.5% / 30y | $2,275 | $1,450 | $826 | 6.6% |
| $500,000 | $300,000 @ 3.0% / 25y | 7.0% / 30y | $2,994 | $1,423 | $1,571 | 9.4% |
| $350,000 | $200,000 @ 4.0% / 15y | 6.0% / 30y | $1,889 | $1,479 | $409 | 3.3% |
| $600,000 | $380,000 @ 3.25% / 22y | 7.25% / 30y | $3,684 | $2,017 | $1,667 | 9.1% |
Down payments: $40,000 / $50,000 / $35,000 / $60,000 respectively. Every figure is produced by the calculator's formula (standard amortizing payment on the wrap amount, minus the payment on the existing loan); yield is annual spread divided by the seller's equity (price minus existing balance). The third row shows the danger zone — a 2-point spread over a high-rate underlying loan leaves only 3.3%.
In a wrap-around mortgage, the seller does not pay off their existing loan at closing. Instead, the seller lends the buyer the full purchase price (minus down payment) on a new note, and continues making payments on the original loan out of the buyer's payment. The new note "wraps around" the old one — hence the name.
The seller's profit is the rate spread. If the existing loan costs 3.5% and the new note charges 6.5%, the seller keeps the 3-point difference on the wrapped balance, every month, for the full term.
A wrap is unsecured seller financing layered on a secured loan. If the buyer stops paying, the seller must keep paying the underlying loan from their own pocket or default on it. Most underlying mortgages also carry a due-on-sale clause — a wrap technically triggers it, and a lender can call the loan if it discovers the transfer. Lenders historically have not enforced this on performing loans, but it remains a real legal risk.
There is also a title problem: the existing lender's lien stays on the property, and the buyer's equitable interest sits behind it. If the seller dies, divorces, or goes bankrupt, unwinding the arrangement can take years. This is why wraps are typically done with an attorney and a title company that understands them, not with a handshake.
Most practitioners want at least 3 percentage points, or a yield on equity above 8%. The third example row shows why: a 2-point spread on a 4% underlying loan yields only 3.3% on the seller's equity — less than a savings account, for substantially more risk.
A wrap is a specialized tool, not a general-purpose loan. It fits these situations:
A wrap is usually the wrong tool if your existing loan is already at or above market rates — there is no spread to capture, and you would be taking on servicing risk for nothing.
Technically yes — transferring title while the original loan stays in place violates a standard due-on-sale clause. In practice lenders rarely call performing loans, and the Garn-St Germain Act limits enforcement in some transfers, but the risk belongs to the seller, not the buyer.
The buyer typically pays them, but the seller remains the legal owner of record until the underlying loan is paid off, so the seller is ultimately liable if the buyer does not. Most wraps use an escrow arrangement or require the buyer to fund an impound account.
The wrap note becomes part of the seller estate and the obligation continues, but the buyer now deals with an estate or trust. This is the single biggest reason wraps fail — title and payment authority become unclear. A written successor clause and a title company servicing the note prevent most problems.
Yes, and most buyers intend to. The wrap note should state the payoff terms clearly and confirm the underlying loan balance is what has been amortized, since the buyer needs a clean payoff to refinance into a conventional loan.
The interest portion of each payment is ordinary income. Gain on the sale is capital gain reported under the installment method if you elect it, but depreciation recapture is taxed at up to 25% and cannot be spread. A CPA should structure this before closing.
⚠️ Important Note: A wrap-around mortgage is a legal and financial structure with real due-on-sale, title, and default risk. This calculator estimates payment math only. It does not account for the underlying loan's escrow, any balloon on the existing loan, or lender consent. Have an attorney and a CPA review the note and disclosure before signing.