A single mortgage on two or more
properties forming security for a loan. A
blanket mortgage allows the lender, to gain
recourse against all properties, upon
default, and further protect his/her
interest by not allowing the sale of any of
the properties without specific permission.
A variation on blanket financing is
found in large residential projects,
particularly new home developments and
condominium projects. A lender supplies a
blanket mortgage over the entire condominium
project for construction purposes and is
fully secured by the developer’s covenant
during the construction stages. Upon
completion, the condominium units are
marketed and the lender is correctly
positioned to provide financing for
individual buyers. This is accomplished by
fracturing the blanket mortgage. Once sold,
the buyer must qualify for the unit and upon
approval, a mortgage is created for that
property to be registered at closing.
Example of Blanket Mortgage
Owner Smith wants to renovate his
cottage valued at $90,000 but is having
difficulty securing a mortgage for $35,000
on the recreational property. His bank will,
however, increase the existing first
mortgage on his city home, valued at
$185,000 from the current amount of $100,000
to $135,000, provided that the mortgage is
registered against both properties.
Both parties achieve their
objectives—Smith is able to secure the
required funds and will probably receive a
more favourable interest rate than normal
for recreational property—the bank increased
business with a client, maintained a
conservative loan to value ratio ($135,000 ÷
185,000 or .73) on the primary property, and
obtained additional security (the cottage
valued at $90,000).
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