Wraparound Mortgage
A seller-financed loan that 'wraps' an existing underlying mortgage — the buyer pays the seller, who keeps paying the original lender.
A wraparound mortgage (a "wrap") is a form of owner financing in which the seller creates a new note to the buyer that includes, or wraps around, an existing mortgage that stays in place. The buyer makes one payment to the seller; the seller continues paying the underlying lender out of that payment and keeps the difference.
How a wrap works
Suppose a seller still owes $100,000 at 4% on their original loan and sells the home for $160,000 on terms, financing $150,000 at 8%. Rather than paying off the old loan, the seller wraps it:
- The buyer pays the seller on the new $150,000 wrap note at 8%.
- The seller keeps making the $100,000 underlying payment at 4%.
- The seller earns the spread between the 8% they collect and the 4% they pay, plus the gain on the wrapped balance.
The original loan is not paid off; it remains the seller's obligation, and the seller's deed of trust or mortgage still sits in first position under the new wrap.
The due-on-sale risk
The central risk of any wrap is the underlying lender's due-on-sale clause. Transferring the property can give that lender the right to call its loan due. Many wraps operate for years without incident while payments continue, but the right exists and never disappears. This is the first thing a note buyer evaluates on a wrap.
Why wraps are harder to sell
Because a wrap note sits behind an underlying loan rather than in clean first position, it carries layered risk: due-on-sale exposure, the chance the seller fails to forward payments to the senior lender, and the complexity of two loans secured by one property. As a result:
- Many retail note buyers will not purchase wraps at all.
- Those who do apply a deeper discount or require strong seasoning and clear documentation.
- A wrap on free-and-clear property is not actually a wrap — if there is no underlying loan, you simply have a clean first-lien note worth more.
Selling a wrap note
If you hold a wrap and want to sell it, full disclosure is essential: provide the underlying loan terms, balance, and payment status, plus the wrap note and a verifiable payment history. Some sellers improve marketability by paying off or refinancing the underlying loan first, converting the wrap into a clean first-lien note. Mortgage Note Capital reviews wrap notes case by case — tell us the full structure up front so we can give you an accurate answer.