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.

  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Due-On-Sale Clause

    A provision in a mortgage contract that requires the mortgage ...
  3. Owner Financing

    When a property buyer finances the purchase directly through ...
  4. Loan

    The act of giving money, property or other material goods to ...
  5. Vendor Take-Back Mortgage

    A type of mortgage in which the seller offers to lend funds to ...
  6. No Documentation Mortgage - No ...

    A type of reduced-documentation-required mortgage program in ...
Related Articles
  1. Retirement

    Should You Buy Property On Leased Land?

    Find out what to consider before investing in a leased-land property.
  2. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  3. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  4. Personal Finance

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  5. Options & Futures

    The Reverse Mortgage: A Retirement Tool

    Discover another way to fund your retirement without having to make payments on a loan.
  6. Insurance

    What is a Force Majeure?

    A force majeure clause frees both parties in a contract from fulfilling their obligations in the event of some catastrophic or unexpected occurrence.
  7. Credit & Loans

    Explaining Equated Monthly Installments

    An equated monthly installment is a fixed payment a borrower makes to a lender on the same date of each month.
  8. Investing Basics

    Tiny House Movement: Making Market Opportunities

    The tiny house movement throws all assumptions about household budgeting and mortgage management out the window, and creates new market segments too.
  9. Investing

    Where Should I Keep My Down Payment Savings?

    While saving up for a down payment, where should you keep your money. A bank? The stock market? It all depends on your timeline.
  10. Credit & Loans

    Questions To Ask Your Mortgage Lender

    When buying a house, avoid nasty surprises by asking the right questions about your mortgage lender's qualifications and the mortgage process.
  1. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  2. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  3. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  4. In what instances does a business use closed end credit?

    The most common types of closed-end credit used by both businesses and individuals are mortgages and auto loans. Businesses ... Read Full Answer >>
  5. What are the long-term effects of delinquent accounts?

    Delinquency occurs when borrowers fail to make payments on their loans. All loan borrowers should do their best to avoid ... Read Full Answer >>
  6. How was the American Dream impacted by the housing market collapse in 2008?

    The American Dream was seriously damaged by the housing market collapse in 2008. In many ways, the American Dream is a self-fulfilling ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!