What Is a Blanket Mortgage?
A blanket mortgage is a mortgage that covers two or more pieces of real estate. The real estate is held as collateral on the mortgage, but the individual pieces of the real estate may be sold without retiring the entire mortgage.
Understanding Blanket Mortgage
This is an alternative to a developer having to take out numerous individual properties within a large property purchase that they intend to sell in individual parts. Blanket mortgages are typically taken out to cover the costs of purchasing and developing land that developers plan to subdivide into individual lots.
Different Ways Blanket Mortgages Can Be Used
For property investors who own multiple properties, a blanket mortgage may be a refinancing option that would allow them to have more cash on hand. The aggregate blanket mortgage might take advantage of better interest rates or simply be negotiated to offer more favorable terms than having pay separately negotiated loans. This could free up more capital if it reduces the size of monthly payments, which in turn could offer them more resources to purchase more property.
By using a blanket mortgage, a property owner can save on various costs associated with applying for and closing on multiple mortgages. Furthermore, the property owner would only need to pay one set of fees for the blanket mortgage rather than separate fees on each property.
“House flippers” might seek blanket mortgages as a way to act quickly and take advantage of opportunities they see in the market. If house flipper identifies multiple properties they want to acquire, refurbish, and put back on the market, a blanket mortgage could offer more leeway to make such actions more possible. The clauses of such a mortgage may make it feasible to resell the properties as new buyers come forward individually. Depending on the terms of the blanket mortgage, it may or may not be necessary to refinance the loan when separate properties are sold.
Blanket mortgages might also be sought by businesses that have multiple locations they wish to own and operate out of. This could apply to real estate developers who are investing in commercial or residential property, such as apartment buildings or multifamily homes. With a blanket mortgage, there can be a risk to the property owner. If the owner defaults on one property, this could trigger a situation that allows the lender to seek control of all of the entire set of properties covered by the mortgage.