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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
What Is a Blanket Mortgage?
When a single mortgage covers two or more real estate property then the term ‘blanket mortgage’ is used.
Though the properties are held together as collateral on the mortgage, the individual pieces of the real estate may be sold without disturbing the entire mortgage.
It is easier to get financing for multiple properties with blanket mortgages instead of having to take out several mortgages.
Understanding Blanket Mortgages
If developers, real estate investors, and flippers want to finance the purchase of multiple properties then a blanket mortgage is a great alternative that can be used.
Blanket mortgages are also termed sometimes blanket loans, they are taken out to finance purchasing and developing land that borrowers plan to subdivide into individual lots.
Many times borrowers acquire properties within a large purchase that they intend to sell in individual parts.
For instance, blanket mortgages may be sought by flippers as a way to act quickly and take advantage of opportunities they see in the market.
A blanket mortgage could offer more leeway if an investor identifies multiple properties they want to acquire, refurbish, and put back on the market, by making such actions more possible.
As new buyers come forward individually the clauses of such a mortgage may make it feasible to resell the properties.
When separate properties are sold depending on the terms of the blanket mortgage, it may or may not be necessary to refinance the loan.
Blanket mortgages are also sought by businesses with multiple locations they wish to own and operate out of.
Like real estate developers who invest in commercial or residential property, like apartment buildings or multifamily homes.
Most blanket mortgages come with a release clause which frees up the borrower from the portion of the loan which is already been paid for.
So when the borrower sells a piece of property that is covered under the loan, the funds can be used to purchase another property.
Developers who develop land and build and sell new homes commonly use blanket mortgages.
Once the homes are sold off, the developers can use the money to purchase new plots of land instead of paying down the loan.
The Advantages And Disadvantages of a Blanket Mortgage
Advantages:
The biggest benefit of taking out a blanket mortgage is that it allows the borrower to have more cash on hand.
For example, it saves on various costs associated with applying for and closing on multiple mortgages for a property owner.
Only one set of fees needs to be paid for the blanket mortgage by the property owner instead of separate fees on each property.
Due to the combined process of a blanket mortgage, there is an advantage of better interest rates and it can be negotiated to offer more favorable terms than paying negotiated loans separately.
It also results in freeing up more capital because of the reduction in the size of monthly payments, and in turn, could offer property owners more resources to purchase more property.
Disadvantages:
But this kind of financing also has its disadvantage. Because the costs tend to be higher than a traditional mortgage.
Because of the number of properties involved the loan amount may be higher requiring a higher down payment by the lender to secure financing.
Compared to traditional mortgage loans the terms of the blanket loan also tend to be different.
The borrower may be required to make a balloon payment by the lenders. Where they may have to pay off the entire loan within a stipulated period of time.
If for some reason the owner defaults on one property, it would impact not just that single property and may trigger a condition that allows the lender to seek control of all the properties covered by that mortgage.
Conclusion
When a single mortgage covers two or more pieces of real estate it is a blanket mortgage.
Even though the real estate is held as collateral, the individual properties can be sold without retiring the entire mortgage.
Developers, real estate investors, and flippers commonly use Blanket mortgages.
With a blanket mortgage, the borrower will have more cash on hand by saving on costs associated with applying for and closing on multiple mortgages.
Compared to a traditional mortgage the blanket mortgages include higher average costs.
