What is Wraparound Mortgage (Wrap Loan)?
A wraparound mortgage is a seller financing technique where the seller keeps their existing mortgage and creates a new larger mortgage for the buyer that wraps around the original. The seller profits from the interest rate spread between what the buyer pays and what the original mortgage costs.
Formula
Monthly Profit = Buyer Payment (at wrap rate) - Seller Payment (at original rate)
Good
Rate spread of 2-3% between existing and wrap rate
Great
Monthly spread income of $300+ while building equity
Watch For
Due-on-sale clause risk on the underlying mortgage
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