Seller carries a new mortgage that wraps around the existing one.
A wraparound mortgage (also called an "all-inclusive trust deed" or AITD) is a seller financing structure where the seller carries a new mortgage covering the full sale price minus the buyer's down payment. This new mortgage "wraps around" the seller's existing first mortgage, which remains in place. The buyer makes payments to the seller; the seller continues paying the original mortgage from those payments.
Wraparounds work when the buyer can't qualify for conventional financing but can fund a meaningful down payment, and the seller wants to close at a strong price with installment-sale tax treatment. The structure: buyer brings down payment + signs wrap note to seller for the balance; seller continues paying the original mortgage from the wrap payments. The buyer never directly interacts with the original lender.
The economic appeal for the seller is the interest rate spread. If the seller's existing mortgage is at 4% and they wrap at 7%, the seller earns 3% on the wrap balance — significantly higher than the underlying mortgage rate. On a $300k wrap with $200k underlying mortgage, the seller earns 7% on $300k from the buyer but pays only 4% on $200k to the underlying lender — a profitable spread.
The major risk is the due-on-sale clause in the original mortgage. Most mortgages contain a clause allowing the lender to call the loan due if the property is sold without lender consent. Wraparounds typically violate this clause, giving the lender the right (though not the obligation) to demand full payoff. If the original lender exercises this right, the seller has to refinance or the deal collapses. Many wraparounds proceed because lenders rarely actually exercise the clause as long as payments continue, but the risk is real.
Modern wraparounds are uncommon — most transactions use conventional or DSCR financing today. They appear most often in seller-motivated, hard-to-finance scenarios: unique properties, borderline borrowers, or sellers with old low-rate mortgages they want to monetize. The structure requires careful legal documentation, including assignment of payment authorization and clear handling of the underlying mortgage.
| Sale price | $425,000 |
| Buyer down payment | $85,000 (20%) |
| Wrap mortgage (buyer to seller) | $340,000 @ 7.5% |
| Buyer monthly P&I (30-yr amort) | $2,377 |
| Seller's existing 1st mortgage balance | $185,000 @ 4.25% |
| Seller's payment to original lender (P&I) | $910 |
| Seller monthly net cash flow | $1,467 |
| Effective yield to seller on net invested capital | ~12% |
A seller financing structure where the seller carries a new mortgage covering the full sale price minus the buyer's down payment. The new mortgage "wraps around" the seller's existing first mortgage, which stays in place.
By capturing the interest rate spread. If the underlying mortgage is at 4% and the wrap is at 7%, the seller earns 3% on the wrap balance — often producing double-digit effective yields on the seller's actual invested capital.
Most mortgages contain a clause allowing the lender to call the loan due if the property is sold without lender consent. Wraparounds typically violate this clause, exposing the seller to acceleration risk if the lender exercises the clause.
Yes, legal but require careful documentation. They're uncommon in standard transactions today but appear in seller-motivated, hard-to-finance scenarios. Always have proper attorney involvement.
Yes — buyer typically refinances within 3–5 years (often required by the wrap terms). The refi proceeds pay off both the wrap balance and (via the wrap) the underlying mortgage.
Matrix structures DSCR and bridge refinances for borrowers exiting wraparound, seller-carry, and other creative financing structures.
