What is a blanket loan?
A blanket loan is a single mortgage that uses multiple pieces of real estate as collateral. These types of loans are typically used by real estate investors or developers who are managing many properties in their portfolios. Blanket loans can make it easier for these borrowers to obtain financing as they can take out a single loan rather than multiple loans for each property.
Borrowers can use blanket mortgages for purchase, refinance or cash-out refinance purposes on residential or commercial assets. Importantly, this financial structuring creates flexibility for the borrower as they can sell a single property and pay off the remaining debt without retiring the blanket loan.
These loans are advantageous to developers who build and sell new homes. For example, in a subdivision with dozens or hundreds of homes, the developer is able to pay off the debt on a single lot when they sell it. They can then use the proceeds to purchase more properties.
What are the pros and cons of blanket loans?
- A borrower can save time with a single loan closing rather than several.
- This also can help them save money on closing costs and fees.
- The blanket mortgage may have a lower interest rate and lower monthly payments than multiple mortgages that are negotiated separately.
- The borrower will free up cash as they sell each property and pay off debt over time.
- Upfront costs are likely to be higher as a lender will typically require a higher downpayment.
- Blanket loans may have balloon structures that keep monthly payments relatively low but require a large lump-sum payment at the end of the term.
- There is added risk for the borrower if they default on a portion of the loan as the lender may seek to foreclose on other properties used as collateral.
Who offers blanket mortgages?
Commercial or residential mortgage lenders may offer many options for various real estate scenarios. Blanket loans often have shorter terms and need to be refinanced prior to maturity. Mortgage brokers can use the search engine on this page to generate a list of lenders that offer these products.