Definition:
A blended rate is a combined interest rate created by merging two different mortgage rates. This typically occurs when a borrower refinances or increases their mortgage before the current term ends. The lender blends the rate of the existing mortgage with the rate on new funds, producing a single, combined interest rate.

Blended rates allow borrowers to access additional funds without breaking their current mortgage and incurring significant penalties. There are two primary types of blended rates:

• Blended and extended rate: Combines the current mortgage rate with the new rate, extending the term to a new period, often the lender’s standard term.
• Blended and increase rate: Only applies to the amount added to the mortgage, while the existing mortgage keeps its original rate and term.

Blended rates are helpful for homeowners who need to refinance or access home equity but want to avoid the higher costs and fees of breaking their mortgage contract entirely. However, the final blended rate may be higher than the current market rate, as it reflects a mix of the original rate and the new rate at the time of refinancing.

Last modified: November 5, 2024