You purchase a $110,000 house for $96,000.

You borrow the $96,000 from a lending institution, they charge you 8% for a term of thirty-years. Your Principal and Interest payments are $704 per month.

You then sell the property to a Buyer for $110,000 which is a little above market value, using the wrap around mortgage method.

You receive a $8,000 down payment and will carry the balance of $102,000 at 10.5%  for thirty years.

You do not pay off the underlying loan, but rather collect payments of $933.00 per month from the Buyer. 

Every month you continue to make payments on the underlying loan of $704.00. Remember, this of course does not include Taxes and Insurance.

You collect $933 per month, and pay $704.00 to your lender, your net is
$229.00 per month.

This is the basics of a wrap around mortgage, where the existing loan remains in place, and a new loan is created which wraps around the existing loan.

The difference between what you collect and what you pay to the lender in this case is $229.00 per month.

You make a profit on the interest rate (you pay 8% and charge 10.5%) and the difference between the purchase price and the selling price ( you  paid $96,000 and sold for $110,000 )

There are many reasons why you can sell for a higher price than you paid for the property, and why someone would pay a higher interest rate. 

The most reasonable one is people with credit problems rarely question the price of the property, or the interest rate, especially since they do not have to go through the stringent lender rules to qualify for a loan.

When the new buyer pays off the remaining balance.

You pay off the underlying loan.

In the meantime, you are making a monthly cash flow on the difference between what you collect and what you pay.

You can collect your monthly checks for thirty years, or you can sell your Wrap    For Cash ------  NOW, 

                 The same principle as Discounted Mortgages                                                  

What is a Wrap Around Mortgage, the basics of a wraparound mortgage, The existing loan remains in place, and a new loan is created which wraps around the existing loan.

Example of a Wrap Around


Example of a Wrap Around


Present Mortgage   $96,000 8% 30 yr            $704.00

         New Mortgage   
$102,000 10.5% 30 yr             $933.00

You pay $704 on the original mortgage and collect  $933.00 on the new mortgage you net  $229.00 per month on the wrap



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