Seller-financed mortgage that wraps a new loan around an existing underlying mortgage instead of paying the older debt off at sale.
A wraparound mortgage is a seller-financed mortgage that creates a new loan for the buyer while the older underlying mortgage stays in place, so the seller collects payments on the larger new loan and continues servicing the older debt.
Wraparound mortgages matter because they are one of the clearest examples of creative real-estate financing. They can preserve attractive underlying loan terms and help a sale close without full replacement financing, but they also add layered payment risk and due-on-sale exposure.
The seller does not pay off the original mortgage at closing. Instead, the seller issues a new larger mortgage to the buyer. The buyer pays the seller, and the seller keeps making payments on the older loan.
That older debt is the underlying mortgage. In most wraparound structures, it is also the First Mortgage or other senior lien that still has priority against the property.
| Structure | Old mortgage after sale | New seller note | Main risk concentration |
| — | — | — | — |
| Wraparound mortgage | Remains outstanding | Yes | Seller remains tied to the underlying first mortgage while buyer pays the new note |
| Purchase-money mortgage | May or may not exist | Yes | Seller credit risk on the new note |
| Subject-to mortgage | Remains outstanding | Usually no new seller note | Title and payment control split from original borrower liability |
Because two debt layers are involved, wraparound structures depend heavily on careful documentation and the behavior of the underlying lender.
A seller has a favorable existing mortgage and wants to finance a sale directly to the buyer. Instead of paying off the old loan, the seller issues a larger new note to the buyer. The buyer sends payments to the seller, and the seller uses part of those funds to keep paying the old mortgage while retaining the spread and any additional principal recovery.
A Purchase-Money Mortgage can be seller-financed without necessarily leaving an older loan in place. Wraparound specifically relies on an underlying mortgage that still exists after the sale.
A Due-on-Sale Clause can create real acceleration risk if the underlying lender objects to the transfer structure.
Seller Financing: The broader financing category that wraparound belongs to.
Purchase-Money Mortgage: The broader seller-financed mortgage concept that does not always require an older underlying loan.
Subject to Mortgage: Another structure that leaves the old debt in place, but without the same new seller-financed note.
Due-on-Sale Clause: A key contractual risk when ownership changes but the old mortgage remains.
First Mortgage: The usual senior loan that stays underneath the wraparound structure.
Second Mortgage: A related subordinated-loan concept that differs from a wraparound structure.