How does a blended mortgage work?

Jun 24, 2025

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Hey there, feeling a little overwhelmed by those mortgage rates? Don’t worry, you’re not alone! Lately, a lot of homeowners are looking into this cool thing called a blended mortgage. It’s a flexible way to refinance your home loan and potentially save a bunch of money.

So, let’s break it down in simple terms.

What’s a blended mortgage?

Think of it like a remix for your mortgage. You’re not starting from scratch, but you’re also not stuck with your old rate. Instead, you combine your existing mortgage with a new one, and the result is a blended interest rate that falls somewhere in the middle. It’s a win-win: you get to lower your rate without having to pay those pesky prepayment penalties that come with breaking your mortgage early.

Two ways to blend it up:

Blend and Extend: This is like hitting the refresh button on your mortgage. You get a lower rate, and your mortgage term is reset (e.g., another 5 years). Great if you want lower payments and a longer period of stability.
Blend to Term: This one just lowers your rate for the remainder of your existing mortgage term. Perfect if you want some savings but don’t want to extend your mortgage.

How do they calculate this blended rate?

It’s a bit like a recipe. They take your old rate, your new rate, your old mortgage balance, and the new amount you’re borrowing. Then, they mix it all together to come up with a new, blended rate.

For example, if you have a $200,000 mortgage at 6% interest and want to borrow an additional $50,000 at the current rate of 4%, the blended rate would be calculated as follows:

Existing mortgage balance: $200,000 * 6% = $12,000 annual interest
New mortgage amount: $50,000 * 4% = $2,000 annual interest
Total interest: $14,000
Total mortgage amount: $250,000
Blended rate: $14,000 / $250,000 = 5.6%

What’s in it for you?

Smaller monthly payments: Who doesn’t love that?
No prepayment penalties: This means you can access your home equity without a hefty fee.
Potentially borrow more: You might be able to get more money out of your home equity than with a traditional refinance.
Flexibility: You choose what works best for your situation.

Are there any downsides?

Not the lowest rate out there: It’s usually higher than the absolute best rate you could get.
Slightly higher overall interest: You’ll still pay more interest over the life of the loan compared to getting the lowest rate possible.
Not every lender offers it: You might need to shop around a bit.

Is it right for you?

If you’re nodding along to these, then a blended mortgage might be a good fit:

You’ve got a high-interest rate on your current mortgage.
You want to tap into your home equity without those prepayment penalties.
You’re looking for lower, predictable payments.

But it might not be the best move if:

You can qualify for the rock-bottom rates.
Minimizing your total interest cost is your top priority.
You’re planning on selling your home soon.

Think of it like this, blended mortgages are a bit of a compromise. You’re not getting the absolute lowest rate, but you’re also not paying a ton in penalties to break your mortgage. If that sounds like a good middle ground for you, then definitely look into it!