Are you wondering, what is a blanket mortgage?
Don’t worry! You’re not alone. Many people come across a lot of unfamiliar terms when dealing with mortgages. (Sometimes we wonder if it’s done on purpose just to confuse people!)
And for some, the meanings are not very clear. That is especially true if you are new to mortgages.
Today, we will talk about exactly what a blanket mortgage is. We will also tell you other things about blanket mortgage loans. So read on to learn more!
What Is A Blanket Mortgage?
A blanket mortgage is a type of mortgage loan in which a single mortgage loan can cover two or more properties and/or real estate properties at a single time.
This type of mortgage loan can be a beneficial choice for many reasons, but it also has its own downsides. Let’s dig a little deeper to find out why.
Why is a Blanket Mortgage Useful?
A blanket mortgage loan is a singular loan where the lender can cover multiple real estate properties.
While you are in a blanket mortgage loan contract, you can sell pieces of the property without giving up your entire mortgage loan.
And that is one of the reasons why this type of mortgage loan is popular among many real estate investors. Additionally, it is also popular among developers and owners of commercial real estate.
A blanket mortgage loan works best for seasoned real estate investors, veteran business people, developers, and others in similar positions. It allows them to open businesses in multiple locations.
Another reason why many real estate investors and the other types of people mentioned above are interested in getting a blanket mortgage loan is because it is more convenient for them. This is because they can get multiple properties rolled up in just a single mortgage rather than having to get multiple mortgages.
In addition to that, a blanket mortgage can also be cost-effective since there is only one interest rate you have to worry about.
Process for Selling Properties Under Blanket Mortgage
As mentioned earlier, with a blanket mortgage you can sell properties without having to give up the entire mortgage. When you do sell, a release clause is triggered for that specific property while your other properties remain as part of the mortgage loan.
That means that properties are used as collateral for each other.
So with the advantages in mind, are there times when a blanket mortgage is unsuitable for you? The answer is yes, let’s explore those below.
Disadvantages to a Blanket Mortgage
Indeed there are times when a blanket mortgage loan may not be suitable for you.
For instance, when you are inexperienced in handling many things at once and defaulting on your mortgage loan, there is a risk of losing all or a large portion of your foreclosure properties.
In addition to that, getting a mortgage loan is not as easy as getting a regular one. First off, the amount of initial down payment you have to pay is higher as more properties are involved.
The terms of the blanket mortgage loan are also different from the usual mortgage.
That is because it is likely that you may have to pay for a balloon payment. A balloon payment is a large payment due at the end of a balloon loan.
So there you have it! A blanket mortgage can be difficult and expensive, but it can also save you time and money in certain conditions, such as developers and those involved in real estate.