Blanket mortgages are mostly used by commercial developers for one of two purposes: first, they might have a plot of land that they plan to develop into multiple lots and sell them off.

Instead of getting a mortgage on each individual lot, they get a blanket mortgage for the entire development. The second is if someone, not necessarily a commercial developer, has multiple plots already developed and wants to use all of the properties as collateral for a new loan.

One the lots are developed, the owner will get a release to clear the title on each individual lot that is sold. A good application of this would be a commercial development or a subdivision. The blanket mortgage covers the entire thing during construction, and then a release is obtained for each parcel as it is sold off. A release clause must be built into the blanket mortgage that allows the developer to sell off each unit of the property as long as certain percentage of the entire debt is paid off.

The blanket mortgage is a way to do all of your financing with one mortgage application. It covers both current properties that can be used as collateral and potential properties that will arise once a plot of land is developed.

Individual homeowners can use blanket mortgages to cover construction of a new home while they are trying to sell their existing property. Once the old property is sold off, the blanket loan is reduced by the dollar amount of equity in the previous home. Some lenders will allow you to pay interest only on the amount that is budgeted for construction of the new property.