Wraparound mortgage.
What it actually means.

What it is

A wraparound is seller financing layered over debt that stays in place. The seller does not pay off their existing mortgage; instead they write the buyer a new, larger note whose balance encompasses — wraps around — the old one. The buyer makes one payment to the seller, and the seller continues paying the underlying lender from it. The seller keeps the difference, which is why wraps are attractive to sellers holding a low-rate loan: the spread between the old rate and the new one becomes ongoing income.

How the spread works

Suppose a property sells for $210,000 with $20,000 down, leaving a $190,000 wrap note at 7% over 30 years — a payment near $1,264 a month. Beneath it sits the seller’s original $120,000 loan at 4%, costing about $573. The seller forwards that $573 and keeps roughly $691, earning a return on money they never lent because the difference in rate applies to a larger balance. The buyer, meanwhile, gets terms and a closing timeline that conventional underwriting would not have offered.

Seller’s monthly spread = payment received on the wrap note − payment made on the underlying loan. A $190,000 wrap at 7% (about $1,264) over a $120,000 underlying loan at 4% (about $573) yields roughly $691 a month.

How investors actually use it

On the buy side, a wrap works like other creative structures: acquisition without qualification, negotiable terms, and a fast close. On the sell side it is a way to exit a property at a good price while converting a low-rate mortgage into an income stream rather than paying it off. Investors most often see wraps where an owner has substantial equity, a cheap existing loan, and a buyer who cannot or does not want to obtain new financing — and, as with all wrap structures, the deal lives on documentation quality. A servicer of record, clear payoff accounting, and a properly recorded instrument are what separate a workable wrap from a dispute waiting to happen.

The common mistake

Ignoring that the buyer’s payments only protect them if the seller actually forwards them. If the seller pockets the money and stops paying the underlying lender, the buyer can lose the property to a foreclosure they were never late on — which is why buyers insist on a servicing arrangement that pays the underlying loan directly. The due-on-sale clause on the wrapped loan sits underneath all of it. Wraps carry significant legal and disclosure requirements that vary by state; use a qualified attorney.