Wrap-Around Loan

DEFINITION of 'Wrap-Around Loan'

A loan that is most commonly used with property with an outstanding loan. The seller lends the buyer the difference between the existing loan and the purchase price. The buyer's periodic loan payments are sufficient to repay the existing loan as well as the seller's loan to the buyer. When the loan involves mortgage loans, it is also referred to as a wrap-around mortgage.

BREAKING DOWN 'Wrap-Around Loan'

Wrap-around loans are a form of owner financing. Some wrap-around loans require consent from the existing lender, and wrap-around loans cannot be done on properties that include a "due on sale" clause in the loan documentation.

Wrap-around loans can also be structured such that the buyer's payments are directed to the lender, rather than the seller, and the lender then forwards the buyer's payment to the seller.

The owner (lender) should be able to charge a higher interest rate to the buyer that what is currently being paid on the loan. Buyers often seek wrap-around loans when they cannot obtain standard financing or mortgages.

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