Blended Rate
Definition and meaning of Blended Rate in real estate.
A blended rate is a weighted average interest rate calculated when refinancing or combining an existing loan with a new loan at a different interest rate.
In more detail
In real estate financing, a blended rate is most commonly used during a blended mortgage transaction, where additional funds are advanced to a borrower. The lender calculates this rate by factoring in the outstanding principal balance of the old loan and the amount of the new loan, along with their respective rates.
This ensures that the borrower pays a single rate that is higher than the original low rate but lower than the current market rate. This calculation helps borrowers determine the true cost of borrowing additional funds without losing the benefits of their initial loan agreement.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Blended interest rate |
| Key components | Original loan balance, new loan amount, original interest rate, and current market interest rate |
| Applies to | Refinancing, mortgage modifications, and combined personal or business loans |
A borrower has a mortgage at a low rate and takes out an additional loan at a higher rate, resulting in a single blended rate on the combined debt.
Frequently asked questions
What is the formula for a blended interest rate?
The blended rate is calculated by multiplying each loan amount by its interest rate, adding the results, and then dividing that total by the combined total loan amount.
Does a blended rate require a new mortgage contract?
Yes, obtaining a blended rate typically involves refinancing or modifying your mortgage, which requires signing a new contract with updated terms and payment schedules.