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Wrap-Around Mortgage Calculator

Enter the wrap and underlying loan terms to find the seller's monthly spread.

How it is calculated

Two level-payment loans are priced over the same term, and their payments are subtracted. For each loan: r = rate / 1200, n = term × 12, payment = P × r / (1 − (1 + r)−n) (or P / n at 0%). The buyer's payment uses the wrap balance and wrap rate; the seller's payment uses the underlying balance and underlying rate. monthly spread = buyer payment − seller payment. Balances are in dollars, rates in percent a year, term in years. Both loans use one shared term, so if the seller's real loan has fewer years left, enter that loan's figures separately. The result ignores taxes, insurance, fees, late payments and the risk that the buyer stops paying.

Worked example

The seller sells on a wrap loan of 250000 at 7% over 30 years (360 payments). The buyer pays 250000 × 0.005833 / (1 − 1.005833−360) = $1,663.26 a month. The seller still owes 180000 at 3.5% and pays $808.28 a month on it over the same term. Spread = 1,663.26 − 808.28 = $854.98 a month kept by the seller, before any costs or losses.

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Common mistakes

  • Entering the purchase price as the wrap balance without a down payment. The wrap balance is what the buyer actually owes, after the down payment is subtracted.
  • Using the original term of the underlying loan. Here one term applies to both loans, so if the seller has 20 years left, the underlying payment shown does not match the seller's actual bill.
  • Treating the spread as pure profit. The seller still carries taxes, insurance, the default risk and the chance that the lender calls the underlying loan.
  • Entering rates as decimals (0.07). Both rates are percentages, so 7% is 7.
  • Swapping the two balances. The wrap balance is normally the larger one; if the spread comes out negative, the underlying payment is above the buyer's payment, so check the inputs.

Sources

About this calculator

In a wrap-around mortgage, a seller who still owes money on their own (“underlying”) home loan finances the sale themselves by writing the buyer a new, larger loan that wraps around — and stays behind — the existing one, rather than requiring the buyer to get a fresh bank mortgage. The seller collects the buyer’s monthly payment on the wrap loan, keeps making the smaller payment on the underlying loan out of that amount, and pockets the difference as their monthly spread.

This structure lets a seller effectively act as the lender — useful when the underlying loan carries a low interest rate that can’t easily be transferred, or when the buyer can’t qualify for conventional financing — and the spread is the seller’s compensation for taking on that lending risk. Real estate investors, seller-financing specialists and creative-finance buyers/sellers use this calculation to see exactly how much monthly income (or shortfall) a proposed wrap deal would produce.

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Comments (1)

  • Editorial team

    The spread has two sources, the interest gap and the larger wrap balance, so test each. With a 250,000 wrap and a 180,000 underlying loan at 3.5 percent over 30 years, charging the buyer 7 percent gives a monthly spread of 854.98, while charging also 3.5 percent leaves 314.33, all from the balance difference. The tool prices both loans over one shared term, and ignores any default risk. Would a version with separate terms help you?

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