Blanket Mortgages

 

A blanket mortgage is a loan that covers two or more pieces of real estate. The properties are held as collateral on the loan, the same as with any other mortgage. The difference is that a blanket mortgage allows one of the properties to be sold before the entire mortgage loan is paid off.

This is especially helpful for property developers. For example, consider a situation where a developer is building ten homes. A standard mortgage would require the developer to pay off the entire mortgage in order to sell one home. Or the developer could take out 10 individual loans that need to be separately managed, but could be paid off as each home is sold.

With a blanket mortgage, the developer takes out one loan to cover all 10 developments. When one-tenth of the mortgage is paid off, a "release clause" is triggered allowing one of the homes to be released from the lien so it can be sold. One thing to note is that, depending on the terms of the blanket mortgage, the loan may need to be refinanced as separate properties are sold.

Blanket mortgages are often used to cover the costs of purchasing and developing land to be subdivided into individual lots, but they can be used in other ways too.

For property investors who own multiple properties, a blanket mortgage could be a refinancing option that allows them to have more cash on hand. The blanket mortgage might take advantage of better interest rates, or it might offer more favorable terms than paying separately negotiated loans. If it reduces the size of monthly payments, it could free up more capital which, in turn, could provide resources to purchase more property.

By using a blanket mortgage, a property owner can save on the various costs associated with applying for, and closing on, multiple mortgage loans: the property owner needs only to pay one set of fees for the blanket mortgage, rather than separate fees on each property.

Blanket mortgages are also used by businesses with multiple locations they wish to own and operate. This can apply to real estate developers who are investing in commercial or residential property, such as apartment buildings or multi-family homes.

And what about "house-flipping"? House-flipping is when you buy a property with the intention of selling it quickly to turn a profit. A house-flipper could use a blanket mortgage to act quickly and take advantage of an opportunity they see in the current real estate market. If a house-flipper finds multiple properties they want to buy, fix, and sell, a blanket mortgage could offer more leeway to getting this done. 

However, borrowers do need to be prudent when considering blanket mortgages. There can be risks for the property owner. If the borrower defaults on one property, for example, it could trigger a situation allowing the lender to seek control of the entire set of properties covered by the loan.

So remember, a blanket mortgage is a loan that covers two or more pieces of real estate and allows one of the properties to be sold before the entire mortgage loan is paid off.