Wraparound Mortgage
A wraparound mortgage is a form of seller financing where a new loan "wraps around" and includes the balance of an existing underlying loan, with the buyer paying the seller and the seller continuing to pay the original lender.
The seller creates a new promissory note at a blended, often higher, rate for the full purchase balance, collects the buyer's payment, and forwards the underlying loan payment to the original lender, keeping the spread.
Like subject-to and carry-back deals, a wraparound leaves the original loan's due-on-sale clause exposed, since the underlying lender isn't a party to the new arrangement — a risk that should be disclosed and documented by an attorney, not assumed away.
A wraparound can let a seller collect interest income above their original loan rate while helping a buyer who can't qualify for full new financing, but it requires the seller to trust the buyer's ongoing payments and to keep making the underlying loan payment regardless. Sellers who want a clean, final exit typically compare this against a straightforward cash sale.
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