If you’re considering breaking your fixed-rate mortgage to take advantage of a better rate, you know that comes with high financial penalties. However, there are other options that could save money without having to break your mortgage. One of those options is a blended mortgage.
A blended mortgage or a blended rate mortgage is a form of mortgage financing adjustment to your current mortgage. It blends your current mortgage interest rate with a lower interest rate on the new mortgage amount.
You still have your current mortgage but can secure an interest rate that is somewhere in between your old mortgage rate and the current rate your lender is offering. That way you don’t pay penalties and you could possibly save money with the lower rate. There are two types of blended mortgages: blend and extend, and blend to term.
Blend and extend is when you blend your already-existing mortgage rate with the lender’s currently offered rate while extending your mortgage term. So if you were halfway through a five-year term and negotiated a blended mortgage, you would secure the new rate but your term might be reset to another five years.
This option is good for someone who prefers stability with their payments for an extended period of time.
With blend to term, on the other hand, you still get the blended interest rate but your term isn’t extended. So if, for example, you have two years left in your term, that’s how long you will have your new blended interest rate for. This could result in a slightly higher rate because of the shorter term.
This option is good for homeowners who are confident mortgage rates might fall in the near future and want to take advantage of that.
Whenever you’re in the market for a home, be sure to compare mortgage rates to ensure you’re getting the lowest rate possible for your situation.
As for whether a blended mortgage is right for you, it’s all about doing the math and figuring out which is less: getting a blended mortgage or paying the penalties for breaking your current mortgage and getting a new one.