Wraparound Mortgage
Creative FinanceA wraparound mortgage (or “wrap”) is a seller-financed note that wraps around and includes the existing underlying loan already on the property. The buyer makes one monthly payment to the seller, and the seller continues paying the first mortgage — pocketing the spread between what they receive and what they owe.
How it works. The seller carries a new note for the full purchase price (minus any down payment). The seller remains responsible for the underlying first mortgage and uses the buyer’s payment to cover it. The difference — the “spread” — is the seller’s profit. The buyer gets title, makes one payment, and never touches the original lender. The wrap effectively gives the seller a way to sell a property with an existing low-rate loan without triggering a payoff.
| Line item | Amount |
|---|---|
| Property sale price | $250,000 |
| Existing 1st mortgage (seller’s) | $160,000 at 3.5%, $950/mo |
| Buyer’s down payment | $10,000 |
| Wrap note (seller to buyer) | $240,000 at 6%, $1,440/mo |
| Seller’s monthly spread | $490/mo (~$1,440 − $950) |
Wraps face the same due-on-sale risk as subject-to deals — the underlying lender could theoretically call the loan. The seller must be comfortable with that exposure. Structure your paperwork carefully with an attorney.
The wrap is a powerful hybrid: the seller collects a spread while the buyer gets into a property with minimal cash outlay and a single payment. Study the full anatomy in the sub2-to-wrap case study and understand the foundation in subject-to loan assumption.