A blanket mortgage is a financial product used to fund the purchase of two or more pieces of property. It is a common option used to fund commercial purchases.
When a developer wants to buy multiple pieces of real estate, rather than taking out a mortgage for each individual property, he can use a blanket mortgage. The real estate collectively acts as collateral for the loan. Borrowers only have to pay one set of fees to finance numerous pieces of property.
The term for a blanket mortgage varies, but it usually lasts from one to five years. You also can use the loan to purchase tracts of land that you wish to develop.
Entities that may find a blanket mortgage as a useful product include:
- Companies with multiple locations.
- Investors interested in holding multiple properties.
- Property “flippers.”
One of the most notable benefits of a blanket mortgage is that it usually comes with a release clause. This permits the borrower to sell a piece of property, without having to use the proceeds to pay down the loan. Instead, the borrower can use the funds to purchase and develop more property.
Blanket mortgage example
If you decide to invest in property, take part in house flipping or buy multiple business sites, a blanket mortgage may be right for you. For example, assume that you want to purchase and flip three different properties at a cost of $600,000. You can secure a mortgage for each property, but instead, you take out a blanket mortgage for $600,000 that uses all properties as collateral. After restoring the properties, you sell the first home for $250,000. Thanks to the release clause in your blanket mortgage, you are able to use these funds to purchase and flip another home.
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