Calculate the interest rate spread, monthly cash flow, and seller yield on any wrap mortgage deal. Instant results, plain English.
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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.
The monthly spread this calculator produces is the number most people fixate on, and it is genuinely the headline figure — but it is not the whole return, and treating it as though it were leads sellers to price wraps badly. A wrap generates income from three separate sources, and only one of them shows up in that monthly number.
The first is the rate spread: the seller collects interest at the wrap rate on the full wrap balance while paying interest at the underlying rate on a smaller balance. The second is the balance spread: if the wrap is written at $180,000 against a $150,000 underlying loan, the seller is collecting interest on $30,000 that they do not owe anyone. The third, and the one most often forgotten, is principal paydown. Every month the buyer's payment reduces the wrap balance owed to the seller, while the seller's own payment reduces the underlying balance. Those two amortization schedules run at different speeds, and the gap between them is real equity accruing to the seller that never appears in a monthly cash-flow figure.
This is the structural detail that causes the most trouble in wrap deals, and it is worth understanding before you sign anything. The underlying loan and the wrap are separate instruments with separate terms, and they rarely finish at the same time.
Picture a seller eleven years into a 30-year mortgage who writes a new 30-year wrap. The underlying loan has 19 years remaining; the wrap has 30. For 19 years the seller collects a payment and forwards part of it to their lender. Then the underlying loan is paid off, and for the remaining 11 years the seller keeps the entire payment. That back end is enormously profitable and is invisible in any single-month calculation.
The reverse arrangement is far more dangerous. If the wrap is written for a shorter term than the underlying loan, or carries a balloon that comes due first, the seller must produce the payoff on a loan they still owe money on — using funds the buyer may or may not deliver on schedule. Before agreeing to any wrap, lay both amortization schedules side by side and confirm you understand who owes what in year five, year ten and at maturity.
Nearly every conventional mortgage written in the last several decades contains a due-on-sale clause giving the lender the right to demand payment in full when the property transfers. A wrap transfers equitable interest, and in most cases records a deed — so it can trigger that right. This is not a technicality to wave away, and anyone who tells you it is has an incentive you should examine.
What matters is understanding the actual mechanics. The clause gives the lender an option, not an automatic outcome. Historically, lenders have exercised it inconsistently, and a performing loan generating payments on schedule attracts little attention. But "usually doesn't happen" is a very different statement from "cannot happen," and the consequence if it does is severe: the full balance becomes due, and if it is not paid the lender can foreclose — wiping out the buyer's position and the seller's equity together.
Rising interest rates change this calculus meaningfully. When a lender holds a 4% loan in a 7% market, calling that loan and redeploying the capital becomes considerably more attractive than it was when rates were flat. Any wrap structured around a low-rate underlying loan should be underwritten with a clear plan for what happens if the note is called — typically a refinance path or a reserve sufficient to pay it off.
Wraps fail in predictable ways, and most of those failure modes have known safeguards. The single most important is a third-party servicer. Rather than the buyer paying the seller and trusting the seller to forward payment to the underlying lender, both parties use a licensed servicing company that collects, disburses to the underlying lender, and remits the spread. This removes the buyer's largest risk — that they pay faithfully for years while the seller pockets the money and lets the underlying loan go into default, costing the buyer the property through no fault of their own.
Beyond servicing, a well-structured wrap includes the buyer's right to be notified of and cure any default on the underlying loan; verified proof of insurance naming both parties; a clear written statement of who is responsible for taxes; and recorded documentation so the buyer's interest is a matter of public record rather than a private understanding. Each of these costs very little to put in place and prevents a category of dispute that is expensive and slow to resolve afterward.
Wraps are the creative structure I see people get most excited about and understand least. The spread number is seductive — it looks like free money appearing every month out of an arbitrage nobody else noticed. What I try to get people to sit with is that the seller in a wrap has not actually left the deal. Their name is still on the underlying note. If the buyer stops paying, the lender does not call the buyer; it comes after the seller, whose credit and balance sheet are still fully exposed.
My rule on wraps is simple and I have never regretted it: third-party servicing, always, no exceptions, and a real estate attorney in the state where the property sits drafts the documents. Not a template off the internet, not the one a guru sold at a weekend seminar. The legal cost of doing a wrap properly is a rounding error against the cost of unwinding one that was done badly.
Licensed real estate agent (10 years) · Former right-hand to an active investor through the 2007 financial crisis · Licensed general contractor · Active creative-finance investor; has closed mortgage note deals of his own. Read Rick's full background →
Related tools: Subject-To Analyzer · Seller Finance Calculator · Creative Finance Glossary