Equity Loan Vs. Blanket Mortgage

Blanket mortgages cover multiple properties.

When you own more than one property or piece of land, you can take a loan for the combined values of the properties. This is called a blanket mortgage, and it is one way to use the equity you have in more than one asset in order to achieve ongoing funding. In many scenarios, this would be a better option than taking a separate equity loan for each property.

Purchasing a New Home

If you are purchasing a new home before the sale of your existing home, you could use either an equity loan or a blanket mortgage to do so. With an equity loan, you would take a line of credit against your first home in order to make a down payment on your second. This is risky because you will have to pay off your first mortgage and the equity loan with the sale of the property. With a blanket mortgage, you can take out a large mortgage that combines the first and second home. Even if you sell your first property for less than you would like, you could pay off a portion of the blanket mortgage and keep the loan in good standing.

Developing Property

Many developers use blanket mortgages as an alternative to equity loans to build on large tracts of land. For example, if a home developer purchases three houses in a row, that developer may be planning to improve the properties to build a cohesive complex. To do so, the developer could take a loan on each property individually--an equity loan--or take one loan against the property of all three. The blanket mortgage would be more straightforward in this scenario, resulting in only one monthly payment instead of three.

Refinancing Mortgages

When you own two homes, you may consider a blanket mortgage to refinance the mortgages on one or both. A blanket mortgage would serve your purpose if the loans have similar interest rates. If one loan has a significantly lower rate than the other, however, it may not make sense to combine them in a refinance. In this scenario, a single-equity loan may be preferable. Only refinance the loan that has the higher rate.

Making Improvements

If you wish to make improvements to one property you own, you could take a cash-out blanket mortgage using the equity of multiple properties. In this scenario, you would be taking a new, jumbo loan that is greater than the sum of your current loans. The extra cash could be allocated toward improvements. This may be a scenario where an equity loan is preferable, though. Instead of taking equity from multiple properties to improve only one, take equity from just the one property itself for its own improvement.

Consolidating Assets

Consolidation of assets is a consideration many face as they become wealthier or older. If you own multiple properties, it may make sense to own them under one blanket mortgage. This is particularly beneficial in the event of your death, a pending divorce or other threat to the division of your wealth. Keeping the assets in one loan in your name will make it easier for your beneficiaries to manage the debt after your death. It will also render the loss of one of the assets in a divorce much less likely.

References

• Lead-Steps.com: Blanket-Mortgages
• Rogue Investor: Blanket Mortgage