| Blanket Loan |
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A mortgage that covers more than one parcel of real estate owned by the same mortgagor. Once a parcel is sold, a portion of the mortgage is released, while the rest of the mortgage remains intact. Blanket loans are common among developers who purchase large plots of land and intend to convert that land into a subdivision, or individual parcels such as condominium developments.
Bankapedia's Take:Blanket loans are typically used for commercial mortgages. Whether it be buying tracks of land to build homes on, or buying several buildings under one loan. The advantage a blanket loan has over a standard loan is that you can pay off portions of the loan and retire that portion completely. For example you buy a 3 commercial buildings on one parcel of land for 1.2M. For simplicity sake we will say each building has a worth of $400k. You sell off one of the buildings, but rent out the other 2. You can pay off the $400k you just received in sales proceeds and now only have to pay on the $800k. With a standard loan, even though you have decreased the loan principal your payment would remain the same unless you refinanced. With a blanket loan your payment will reflect the new balance.
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