Wraparound Mortgage Calculator

How it works

Wrap payment = amortized payment on the wrap amount at the wrap rate · spread = wrap payment − existing-loan payment · seller’s equity = wrap amount − existing balance · seller’s yield = IRR of (−equity, spread for the remaining months of the existing loan, then the full wrap payment) × 12

In a wraparound mortgage the seller keeps the original low-rate loan in place and gives the buyer a new, larger loan that “wraps around” it. The buyer pays the seller; the seller keeps paying the original lender and pockets the difference. Because the seller earns the wrap rate on the whole balance while paying the lower rate on the part that is still borrowed, the yield on the seller’s actual equity is well above the wrap rate. The big legal risk is the due-on-sale clause in most existing mortgages, which lets the original lender call the loan when the property is sold.

Worked example

A buyer owes the seller 250,000 at 7% over 30 years: 1,663.26 a month. The seller still owes 150,000 at 4% with 25 years left: 791.76 a month. The seller keeps a spread of 1,663.26 − 791.76 = 871.50 a month on 100,000 of equity, then the full 1,663.26 for the last 5 years — an effective yield of about 10.27% a year on that equity.

Sources: Investopedia — Wraparound Mortgage · 12 U.S.C. § 1701j-3 — Due-on-sale clauses (Garn–St Germain Act)

Frequently asked questions