Interest rates have dropped since you signed your mortgage, and now you’re watching your neighbours lock in lower payments, wondering if you should have done something different. Our team at Mortgage Connection knows breaking your contract early can be tempting, but prepayment penalties can cost thousands. So what can you do when you want a better rate without the sticker shock of ending your current deal?
A blended rate mortgage combines your existing interest rate with a new one, giving you a weighted average that usually sits somewhere between the 2, without necessarily breaking your current contract. It may allow you to access a lower rate without paying the prepayment penalty that could apply if you broke your mortgage early.
However, not all lenders offer a blended rate as an option during an existing mortgage term. Your broker or lender can confirm whether your current lender offers this option and whether you qualify.
How a Blended Rate Mortgage Works
You could think of a blended rate like mixing hot and cold water to get the temperature just right. Your lender combines your old rate with today’s rate. When current rates are lower than your existing rate, the blended rate will generally fall somewhere between the 2 rates, depending on the lender’s calculation.
Here’s what makes it appealing. You keep your existing contract intact instead of tearing it up. That means you avoid the prepayment penalty that comes with breaking a mortgage early.
The exact blended rate depends on factors such as your existing rate, the new rate being offered, the remaining term and, for a blend-and-increase, how much you’re borrowing. Your lender determines the calculation.
Types of Blended Mortgages You Can Choose
Blend and Extend
With this option, your lender resets your term and locks in the blended rate for a longer stretch. If you have 2 years left and want to add 3 more, you could end up with a fresh 5-year term.
This works well if you want steady, predictable payments for years to come. You get a lower rate now and the peace of mind of a locked term.
Blend to Term
Here, your original term length stays the same. The blended rate lasts until your current term ends, with no extension added.
This may suit you if you like where your term ends and don’t want to commit to more years. You still get a lower rate for the time you have left.
Blend and Increase
A blend-and-increase may allow you to increase your mortgage amount while adjusting your existing mortgage rate. If you qualify, the additional borrowing may be combined with your existing mortgage and a blended rate may be calculated across the balance.
This could be an option if you’re looking to fund a renovation or consolidate certain higher-interest debts, but the amount you can borrow and the terms available depend on your lender, your home equity and your financial situation.
Pros and Cons of a Blended Mortgage
Upsides to Consider
Blending brings a few benefits that are worth considering. This can include:
- No prepayment penalty since you keep your contract
- A potentially lower rate partway through your term
- Access to your home equity for renovations or debt
These benefits can free up cash and lower your monthly payments at the same time.
Trade-Offs to Keep in Mind
Blending isn’t always the cheapest path, so it’s worth talking with a mortgage broker in Calgary who can help you weigh these points first:
- Breaking your mortgage and starting fresh might save more in some cases
- Future rates are hard to predict, so timing matters
- You may have less flexibility if you decide to move
If you’re considering a blend before your current term ends, your existing lender would need to offer it. A broker can check whether a mid-term blend is available and compare it with the cost of other options.
Other Options to Consider
A home equity line of credit, or HELOC, lets you borrow against your equity without touching your mortgage rate. A full refinance might land you a lower rate overall, even after the penalty fees associated with breaking a contract.
A lower rate doesn’t always mean a lower overall cost. Before choosing a blended rate, compare the savings from the new payment with any fees, the cost of extending your term, and the rates you could qualify for elsewhere. Meeting with mortgage brokers in Calgary can help you compare all your options side by side.
Meet with a Mortgage Broker
At Mortgage Connection, our team is passionate about helping you make fully informed decisions with transparency and clarity. Reach out today to talk through your blended rate options and find the path that fits your life.
