A Blanket Mortgage covers multiple properties on the same loan
If you're thinking about investing in multiple properties or already own several homes, you may have come across the term "blanket mortgage." This type of loan can be a useful tool for real estate investors, allowing them to finance multiple properties at once and simplify the borrowing process. In this article, we'll explain what a blanket mortgage is, how it works, and some of the advantages and disadvantages of using one.
What is a Blanket Mortgage?
A blanket mortgage, also known as a portfolio loan, is a single mortgage that covers multiple properties. Instead of taking out individual mortgages for each property, you can use a blanket mortgage to finance two or more properties on the same loan. This can be useful if you're a real estate investor acquiring multiple properties or if you already own several homes and want to simplify your borrowing.
How Does a Blanket Mortgage Work?
When you take out a blanket mortgage, the lender will consider all the properties you want to finance as one entity. This means they will usually use all the properties as collateral for the loan, rather than just one. The amount you can borrow will depend on the combined value of all the properties.
For example, let's say you own two rental properties, each worth $200,000. Instead of taking out two separate mortgages, you could take out a blanket mortgage for $400,000, with both properties as collateral for the loan. You would make one monthly payment on the mortgage, and if you were ever unable to make payments, the lender could foreclose on both properties to recover their losses.
Advantages of Blanket Mortgages
The most significant advantage of a blanket mortgage is that it can simplify the borrowing process. Instead of juggling multiple mortgages, payments, and interest rates, you can consolidate everything into one loan. This can make it easier to manage your finances and reduce the administrative burden of owning multiple properties.
Another advantage is that you can potentially borrow more than you would be able to with individual mortgages. Because the lender is using multiple properties as collateral, they may be willing to lend more money than they would for a single property.
If you're a real estate investor looking to grow your portfolio, a blanket mortgage can also be an efficient way to acquire multiple properties at once. Instead of having to go through the mortgage process for each property individually, you can finance several properties with one loan.
Disadvantages of Blanket Mortgages
While a blanket mortgage can be a useful tool, it's not without its drawbacks. One potential disadvantage is that the lender will typically charge a higher interest rate than they would for a single property mortgage. This is because the lender is taking on more risk by using multiple properties as collateral.
Another potential disadvantage is that if you ever want to sell one of the properties covered by a blanket mortgage, it can be more complicated. Because the lender has a lien on all the properties, you'll need to pay off the entire mortgage before you can sell any of the properties. This can make it harder to sell individual properties if you need to free up cash.
Finally, if you default on a blanket mortgage, you risk losing all the properties covered by the loan. This can be more catastrophic than defaulting on a single property mortgage, as you may lose multiple properties in one fell swoop.
When Should You Consider a Blanket Mortgage?
So when should you consider a blanket mortgage? If you're a real estate investor looking to finance multiple properties, or if you already own several homes and want to simplify your borrowing, a blanket mortgage could be a smart choice. However, you'll want to weigh the advantages and disadvantages carefully before making a decision.
Before applying for a blanket mortgage, you should also make sure you're financially prepared to take on the additional debt. This means having a solid credit score, a reliable income stream, and a clear understanding of your cash flow. You may also want to consult with a financial advisor or real estate professional to help you make the right decision.
Conclusion
A blanket mortgage can be a valuable tool for real estate investors or homeowners looking to finance multiple properties. By consolidating everything into one loan, you can simplify your borrowing, potentially borrow more money, and streamline your finances. However, a blanket mortgage does come with risks and drawbacks, so it's important to weigh the pros and cons carefully before making a decision. By doing your research and consulting with a professional, you can make an informed choice about whether a blanket mortgage is right for you.