blended mortgage loan


A mortgage loan that is created by combining an existing mortgage loan with a new mortgage loan and 'blending' their interest rates.

A blended mortgage loan is often used when selling a lower-priced property and buying a higher-priced property, because the existing mortgage loan is not enough to cover the new property.

For example, say you have a loan of $100,000 at 2.5% with 30 months left on your loan term. You want to buy a higher-priced property and need another $50,000, but in the meantime, interest rates have risen to 3.5%. You may be able to arrange a blended mortgage loan for a total amount of $150,000 with a blended interest rate of 2.83333%.

(For those who are interested, the interest rate calculation works like this: first, multiply the old interest rate by the remaining loan amount. Then, take the new loan amount and multiply that by the new rate over the same term. Finally, add those two amounts together and then divide by the total value of the loan.

So, following the example above, first we multiply $100,000×2.5 = $250,000. Then we multiply $50,000×3.5 = $175,000. Now add the two ($250,000+$175,000) = $425,000. Dividing this by $150,000 gives 2.83333, so the new interest rate would be 2.83333%.)

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