A blanket mortgage, also known as a blanket loan refinance, allows you to consolidate two or more mortgages into one. This means you can finance multiple properties under one loan. This is particularly helpful for real estate investors who might find handling loans for multiple properties a tedious or costly task.
If you’re considering getting a blanket loan for your real estate investment, here’s a breakdown of the pros and cons of blanket loans that you need to know.
Pros of Blanket Loans
1. Lower Interest Rates
Different mortgages mean different interest rates on various properties, some of which may be highly unfavorable.
A blanket loan allows you to consolidate all your debts into a single loan with a single interest rate. To make consolidation more tempting, lenders frequently offer interest rates even lower than what you are currently paying.
2. More Leverage
Leverage is the use of debt to boost the possible return on a more valuable asset. A blanket mortgage can offer more leverage than a standard mortgage because it can buy more than one property at a time.
For example, you take a loan of $300,000 to buy a property that gives you a return of $5000 every month. If you spend the same amount buying three properties, you can get a monthly return of $7000-$10000, which is significantly more than investing in a single property.
Cons of Blanket Loans
1. Higher Down Payments
A real estate investor looking for a loan for several real estate assets can always walk away from a bad deal, leaving the lender with nothing.
To cover this risk, lenders set higher down payments for blanket mortgages. Furthermore, even if the percentage is the same as for a regular mortgage, a blanket mortgage will almost certainly require a greater amount of money, to begin with.
2. Unfavorable Terms For Balloons Payments
Sometimes lenders offer blanket mortgages with balloon payments. This means that the borrower is required to repay the entire amount in a shorter period, with the final payment being a single lump sum.
This puts real estate investors under pressure to find additional cash or sell the properties they intended to resell later for higher profits.
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