Blended mortgages and blend and extend may be terms you’ve heard before. If you need to access your home’s equity or are looking to reduce the interest rate on your mortgage, you will need to refinance your mortgage.
Basically, there are three ways to refinance your mortgage: you can break your mortgage before your term is up for renewal. This would involve paying a prepayment penalty and working with your existing lender or another lender to find a new mortgage product that fits your needs.
The second option would be to take out a home equity line of credit (HELOC) behind your existing mortgage. This would tap into your home’s equity and get you the funds you’re looking for if that’s the goal and can be accessed on a needs basis. With a HELOC, you wouldn’t have to pay a prepayment penalty since it’s an entirely separate mortgage product placed on your home in addition to your current mortgage
The third option would be to get a blended mortgage. In this situation, you would be able to avoid the prepayment penalty because you wouldn’t be breaking your mortgage, technically speaking. Instead, a blended mortgage would be combination of your existing mortgage rate and the current mortgage rate available on the market for an entirely new interest rate somewhere in between the two.
There is a second version of a blended mortgage, typically referred to as a blend to term mortgage. In that scenario, you are combining and blending your rates but not extending your mortgage term. If you had two years left on your existing five year term, your new mortgage would have a two year term as well. The condition to a blend to term mortgage is the lender will usually only offer it if you are increasing your mortgage amount and accessing your equity, otherwise they would just be losing money compared to your original mortgage.
Let’s compare some of the differences between the three options:
|Break Your Mortgage||HELOC||Blended Mortgage|
|Credit Limit||80% of home value||80% of home value1||80% of home value|
|Can it Be Used to Access Equity?||Yes||Yes||Yes|
|Access to Equity||Lump sum||As needed||Lump sum|
|Can it Be Used to Lower Rate?||Yes||No||Yes2|
|Rate Type Available||Variable/Fixed||Variable||Variable/Fixed|
|Mortgage Rates||Today’s lowest rate||Today’s lowest HELOC rate||Combined/Blended rate of your current rate + today’s lowest rate|
|Payment Type||Traditional (Interest + Principal)||Interest only||Traditional (Interest + Principal)|
- Your mortgage + HELOC can be up to 80% of your home’s value.
- If the current mortgage rates are higher than your existing mortgage rate, your interest rate can actually go up.
Is A Blended Mortgage Right For You?
If you want to access your home equity or lower your interest rate, a blended mortgage is good option that is often underutilized. As specialists in the mortgage refinance space, Ardent Mortgages can get you the best mortgage solution on the market for your situation. To explore your options, schedule your free, no obligation discovery call by clicking right here.
We will set you up with one of our expert mortgage agents and go over your current financial situation, figure out what mortgage product is right for you, and then help you every step of the way to finalize your deal. Schedule your call today.