Wrap-Around Mortgage

A wrap-around mortgage (or wrap) is a new seller-financed note that wraps around an existing underlying mortgage. The buyer makes payments to the seller on the full wrap amount. The seller forwards the underlying mortgage payment to the original lender and keeps the difference (spread). Example: seller has a $150,000 underlying loan at 4.5%. Buyer gets a $280,000 wrap note at 6.5%. Seller collects 6.5% on $280,000 and forwards 4.5% on $150,000 - earning a yield on their equity plus a spread on the underlying balance. Risk: if the seller fails to forward the underlying payment, the buyer's title is at risk. Mitigate by using a professional loan servicer to handle payment splitting.