Enter the relevant mortgage amounts and interest rates into the calculator to determine your new blended mortgage rate and compare it against your current financing options.
Blended Rate Mortgage Formula
The following equation is used to calculate the Blended Rate Mortgage.
BR = (L1 * R1 + L2 * R2 + ... + Ln * Rn) / (L1 + L2 + ... + Ln)
- Where BR is the blended mortgage rate (%)
- L1, L2, …, Ln are the principal amounts of each loan ($)
- R1, R2, …, Rn are the interest rates (in decimal form) for each corresponding loan
To calculate the blended mortgage rate, multiply each principal balance by its respective interest rate, sum these products, and divide by the total principal of all loans combined.
What is a Blended Rate Mortgage?
Definition:
A blended rate mortgage is a method of combining multiple mortgage loans into a single interest rate. This allows borrowers to merge existing loans or refinancing options into one mortgage payment, often at a potentially lower rate than some existing higher-interest loans. It provides an overview of the total interest rate you will pay when considering all loans together.
How to Calculate Blended Rate Mortgage?
Example Problem:
The following example outlines the steps and information needed to calculate the blended rate mortgage.
First, determine the amounts and rates for each loan. In this example, there are two loans: Loan 1 is $200,000 with an interest rate of 4.00%, and Loan 2 is $100,000 with an interest rate of 5.00%.
Next, use the formula above to calculate the blended rate:
BR = (L1 × R1 + L2 × R2) / (L1 + L2)
BR = ($200,000 × 0.04 + $100,000 × 0.05) / ($300,000)
BR = ($8,000 + $5,000) / $300,000 = 0.0433 = 4.33%
Finally, interpret the result to understand your new blended mortgage rate. In this case, the total rate from merging these loans is 4.33%, which may help the borrower decide if this blended approach is financially beneficial.
FAQ
How does a blended rate mortgage benefit me?
By merging multiple loans into a single mortgage, you may reduce your overall interest rate if one of the existing loans has a significantly higher rate. This can streamline monthly payments, potentially leading to cost savings over the life of your loan.
Will I have to pay refinancing fees with a blended rate mortgage?
Depending on your lender and your existing loan terms, you might incur refinancing costs, closing fees, or other charges when consolidating your loans. Always calculate these additional expenses to determine if the blended rate savings outweigh the fees.
How often should I re-evaluate my blended mortgage rate?
It’s a good idea to check your mortgage financing when major life events occur (such as moving, changing jobs, or experiencing significant interest rate shifts in the market). Regularly revisiting your mortgage terms can ensure you’re making the most cost-effective decision for your property financing.