In some cases, consumers might consider a blanket mortgage in order to finance a new home’s construction. Here’s a look at how blanket mortgages work and when they might make sense.
When To Use a Blanket Mortgage
Blanket mortgages are most often used by investors, commercial property owners, and multifamily buyers looking to rent their properties or otherwise use them for income. Investors often use these loans to either finance the purchase of multiple properties at once or consolidate their existing mortgages into a single, easy-to-manage loan. Some investors may also use these to purchase a large plot of land that they plan to subdivide into several lots and sell separately.
Pros and Cons of Blanket Mortgages
Pros Explained
One of the biggest advantages of a blanket mortgage is that it saves time and hassle. The mortgage application process is known to be a time-consuming and tedious one, and applying for multiple loans at once can be daunting. Blanket mortgages allow multiproperty buyers to condense this extensive process into one single mortgage application, reducing time and improving overall efficiency. They also cut down on the hassle of managing multiple mortgage loans at once. Rather than paying multiple mortgage payments month over month, buyers with blanket mortgages pay just a single payment to cover all of their properties. Blanket mortgages also allow owners to access more funds via cash-out refinancing and equity loans. This can be helpful when looking to finance a new property, enter a new investment venture, or repair existing properties.
Cons Explained
Blanket mortgages aren’t without their drawbacks. One of the biggest disadvantages of these loans is that they can make it hard to sell just a single property in the group. The loan must be structured with a “partial release” clause in order to allow for this type of transaction. If it’s not, then the entire balance of the mortgage would be due upon sale. Blanket mortgages also come with higher rates and fees than most loans, and each property will need to be appraised separately, adding yet another cost to the final bill. There will also be title search and insurance fees for every property, and you can’t finance properties in multiple states. There’s also a financial risk on these mortgages. With a blanket loan, every property serves as collateral for the others. If you default on the loan, your lender can foreclose on every property in the group. This means that ensuring all your properties have healthy cash flow is crucial.
Where to Get a Blanket Mortgage
Blanket loans typically come from nonbank lenders, and they tend to be more difficult to come by—particularly in smaller markets. Your best bet is to look for commercially focused lenders in your region since these loans are more popular among experienced investors and commercial buyers. To get a sense of what your payment might be on a blanket mortgage and how it breaks down, use our loan amortization calculator (scroll down for a schedule of payments by year, which includes the total interest each year and the remaining balance).
