Calculate the interest rate spread, monthly cash flow, and seller yield on any wrap mortgage deal. Instant results, plain English.
A wrap mortgage — also called a wrap-around mortgage or all-inclusive trust deed (AITD) — is a type of seller financing where the seller creates a new mortgage that "wraps around" their existing loan. Here's how the money flows:
The buyer makes one monthly payment to the seller on the wrap mortgage. This payment is based on the full wrap loan amount at the agreed wrap rate.
The seller continues making payments on their original underlying mortgage and keeps the difference (the "spread") as profit. The spread comes from two sources: (1) the difference in interest rates, and (2) any difference in loan balance between the wrap and the underlying loan.
Example: Seller has a $150,000 mortgage at 4.5%. They create a wrap at $180,000 at 7%. The buyer pays based on $180,000 at 7%. The seller pays their lender based on $150,000 at 4.5%. The seller pockets the monthly difference — which this calculator computes for you.
Important: Most conventional mortgages have a due-on-sale clause, which allows the lender to demand full repayment when the property is sold or transferred. Wrap mortgages may trigger this clause. Always consult a real estate attorney before structuring a wrap deal.
A wrap mortgage is a form of seller financing where the seller creates a new mortgage that wraps around their existing loan. The buyer makes payments to the seller; the seller continues paying the underlying lender and profits from the spread between the two rates.
In a subject-to deal, the buyer takes title and makes payments directly on the seller's existing loan. In a wrap, the seller retains the underlying loan liability and creates a new, larger loan for the buyer. The seller earns the spread.
The spread is the difference between the wrap rate (what the buyer pays) and the underlying rate (what the seller owes). If the wrap is at 7% and the underlying is at 4.5%, the spread is 2.5%. The seller earns income on this spread monthly.
Wrap mortgages are legal in most states, but they're complex — especially because most conventional loans have a due-on-sale clause that could allow the lender to call the loan due. Always work with a real estate attorney before executing a wrap deal.