A blanket loan , or mortgage blanket, is a type of loan used to fund the purchase of more than one portion of the real property. Blanket loans are very popular among builders and developers who buy large lands, then divide again to create many individual packages for sale in stages one by one. Rather than securing a new mortgage every time part of the development is sold, the borrower uses a blanket loan to buy everything. Once the package is sold, a portion of the mortgage is released, with the remainder of the mortgage intact.
Traditional mortgages usually have a "buy-sell" clause, which stipulates that if the property is secured by a mortgage on sale, the entire mortgage debt should be paid in full. With a blanket mortgage, the "release clause" allows the sale of parts of the secured property and partial repayment of the loan. This is done to facilitate the purchase and sale of several property units with the convenience of a single mortgage.
A builder, for example, may use a blanket mortgage to pay for the construction of several houses in one neighborhood. When a home is sold, the mortgage portion used to fund the house is paid back to the lender, and then retired. The remaining outstanding balance is adjusted, and the blanket mortgage continues gradually that way, until all homes are sold and the entire mortgage is paid off and retired.
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