Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. Monetary Policy Interest Rates. What Is a Blended Rate? Key Takeaways A blended rate is an interest rate charged on a loan that represents the combination of a previous rate and a new rate.
Blended rates can apply to refinanced corporate debt, or to consumer loans, such as a refinanced mortgage. To calculate the blended rate, most often you will take the weighted average of the interest rates on the loans. Compare Accounts. Barry Choi. What is a blend-and-extend mortgage? Blend-and-extend vs. Blend-and-extend mortgage This is the most common blended mortgage, where you blend your existing interest rate with the current rate offered.
Pros and cons of a blended mortgage Even though the advantages of a blended mortgage are often clear, there are some disadvantages to consider, too. Pros of a blended mortgage No penalties. Lower interest rates. Get access to equity. Cons of a blended mortgage Less flexibility.
It may not be the cheapest option. Depending on your mortgage contract, it may be cheaper to pay the prepayment fee and get a new mortgage.
Impossible to say which option is best. Since interest rates can change at any time, no one will be able to tell you if a blend-and-extend or blend-to-term mortgage will be cheaper.
So this is the idea of an increase and blend — you are literally increasing the mortgage and blending the rate. The calculation can change from lender to lender, and situation to situation. But it could save you thousands of dollars — especially if you are facing either a higher rate or a high penalty.
There is one variation to their blended mortgage called the increase, blend, and extend. With an increase, blend, and extend mortgage you are literally extending the mortgage amortization or time that you take to prepay the mortgage.
So not only do you avoid the penalty and blend the interest rate, but you would also lower your payment by extending the amortization, or time that you elect to repay the entire mortgage. Having the option of extending the mortgage amortization on a blend can be a great cash flow management tool. In most cases, there is no cost for our service and there is never any obligation to proceed with our options or quotes.
Whether or not pursuing a blended mortgage strategy makes sense or not comes down to some fairly straight forward math. There does not need to be much, if any, guesswork involved. In other words, why would you want to pay a penalty, just to break and go into a higher rate mortgage? But what if paying a penalty meant going into a much lower rate mortgage? If the difference in rate is good enough, it may be able to justify the penalty — and then some.
So in these cases, where the penalty is much smaller than the savings that result from a new, lower rate — it does not make sense to proceed with a blended mortgage strategy. If that 0. Through a proper refinance, you could take on a new five-year fixed term at, say, 2. So in the example above, you have three years remaining on a five-year mortgage term, your new mortgage term would still be three years, but your blended mortgage rate would likely be on the higher end of the range because you are opting for a shorter term and, therefore, the lender is able to collect less interest from you.
While a blended mortgage can give you access to a one-time lump sum equity payment, a home equity line of credit HELOC gives you access to the equity in your home on an as-needed basis. Your financial institution will have its own formula for calculating your blended mortgage rate. A blend and extend mortgage will likely offer a slightly lower rate than a blend to term mortgage, since your lender will be able to collect interest from you for longer.
That said, lenders who offer blended rate mortgages will vary in how they choose to approach this product.
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