Analyze any wraparound mortgage deal. See the interest rate spread, monthly profit to the seller, buyer's payment, and equity captured.
A wraparound mortgage (wrap loan) is a creative financing technique where the seller keeps their existing mortgage in place and creates a new, larger mortgage that "wraps around" the original. The buyer makes one payment to the seller at a higher rate, and the seller continues making payments on the original lower-rate mortgage. The seller profits from the interest rate spread between the two loans.
A new mortgage that wraps around an existing one. The buyer pays the seller at a higher rate, the seller pays the bank at the original lower rate, and the seller profits from the spread.
Through the interest rate spread. If the existing loan is at 3.75% and the wrap is at 6.5%, the seller earns the difference on the entire wrapped amount, plus keeps getting the buyer's monthly payments.
Yes, but it carries similar due-on-sale clause risks as subject-to deals. Consult a real estate attorney to structure the agreement properly.