How to use this calculator
- Enter the sale price and the buyer's down payment. The rest becomes the wrap loan.
- Enter the wrap rate and term you are offering the buyer.
- Enter the current balance, rate and remaining years of the seller's existing mortgage.
- Read the buyer payment, the underlying payment and the monthly spread the seller keeps.
- The yield figure is the annualized internal rate of return on the seller's equity left in the deal.
Worked example
A seller owes $120,000.00 at 4% with 22 years left and sells for $250,000.00 with $25,000.00 down. The wrap note is $225,000.00 at 8% over 30 years. The buyer pays $1,650.97, the seller pays the bank $684.22, and the seller keeps $966.75 a month. After 22 years the underlying loan is paid off and the seller keeps the full payment. Total net cash after the down payment is $413,715.95, a yield of 11.05% on the $105,000.00 of equity the seller carried.
These are the default inputs above, so you can follow along.
The formula
Both payments use the amortization formula M = P × r / (1 − (1 + r)−n). Wrap payment: P = sale price − down payment, at the wrap rate and term. Underlying payment: P = current balance, at the original rate and remaining months.
Spread = wrap payment − underlying payment. The seller's carried equity is wrap amount − underlying balance. The yield is the monthly IRR of the cash flows [−equity, spread each month while both loans run, full wrap payment after the underlying loan is paid off] × 12. The seller earns interest on money they still owe the bank, so this yield is usually higher than the wrap rate.
Frequently asked questions
Is a wraparound mortgage legal?
Wraps are legal in many places, but most existing mortgages have a due-on-sale clause that lets the lender demand full payoff if the property is transferred. Some states also regulate wraps specifically. Read our due-on-sale guide and talk to a real estate attorney.
Who pays the underlying mortgage in a wrap?
The seller (or a neutral loan servicing company) keeps paying the original lender from the buyer's payments. Using a third-party servicer protects both sides.
What happens if the seller stops paying the underlying loan?
The original lender could foreclose even though the buyer paid on time. That is the main buyer risk, and why servicing companies and recorded agreements are recommended.
Why is the seller's yield higher than the wrap rate?
The seller earns the wrap rate on the full wrap balance but pays a lower rate on the underlying portion. That leverage raises the return on the seller's own equity.
Can the wrap term be shorter than the underlying loan?
It can, but then the seller keeps paying the bank after the buyer is done, or a balloon must cover it. The calculator warns you when the underlying loan outlasts the wrap.
Related calculators
Related guides
- Wraparound Mortgages Explained (With Example)
- Due-on-Sale Clause: What It Is and the Risk in Creative Financing