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A blended interest rate is a combination of an existing rate and a new rate. It is a weighted average calculation based on both rates and the amount of principal associated with each rate.

Many lenders offer blended rates when a borrower is increasing his/her mortgage before maturity. In that case, the rate on the borrower’s “old money” is blended with the lender’s current rate on the “new money” borrowed.

Spy Tip: When increasing your mortgage, always compare the cost of your lender’s blended rate to the cost of the best rate you could get in the open market. Don’t forget to factor in your breakage penalty and switching costs.

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