Do I need a blanket mortgage?
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Should you seek private blanket lenders or traditional home loan financiers for real estate investment? Understanding what a blanket loan is, its pros and cons may help you make an informed and wise decision.
What is a blanket mortgage?
It's a single property loan that allows you to finance more than one real property at one time. Instead of taking several mortgages to purchase multiple properties, you only borrow one blanket loan.
Unlike a traditional loan that has "a due-on-sale clause," a blanket mortgage loan has a "release clause." After selling a piece of secured property, the former means that you must pay the whole remaining mortgage back immediately.
But with a "release clause" on the blanket loan, you can sell one or some property portion and then only settle the outstanding loan for the sold real estate. It allows clearing the whole mortgage partially and gradually, according to private blanket lenders.
Who can use these loans?
Real estate investors
Commercial landlords
Construction companies
Property developers and flippers
Residential landlords
What are the pros and cons of blanket loans?
Blanket loans allow the borrower to have extra cash on hand. You can save on mortgage fees because you only take a single loan for multiple properties. You'll only pay fees for that one blanket loan. It also gives you the power to negotiate for favorable terms, such as lower interest rates.
However, a blanket loan may require a considerable down payment to obtain it. The larger the loan, the higher the borrowing costs. It's also important to note that few lenders offer blanket loans as they are not as common as other types of loans. For some looking to borrow, it may be hard to qualify for the mortgage facility.
The bottom line
A blanket loan is a single loan that is ideal for real estate investors with robust businesses, a huge portfolio, and an appetite for investing in multiple properties at once. Small investors would rather go for the traditional mortgage.