A blend-and-extend averages your current mortgage rate with today’s rate for a new, longer term — letting you lower a high payment or borrow more without paying a break penalty — at the cost of committing to your current lender for longer, often without testing the wider market. It helps when the blended result beats your alternatives after all costs; it hurts when waiting for renewal would have been free. See the renewal letter trap this option competes with.

How does the blend actually work?

Your lender weights the two rates by balance and remaining time: part of your money keeps something close to your existing rate, and the new money — a longer term, or additional borrowed funds on a blend-and-increase — is priced at current rates. The result is a single new rate somewhere between the two, on a fresh term that restarts your clock. No penalty is charged because you never leave the lender — which is precisely the lender offers it.

When does blending help?

When your current rate is far below today’s rates and you need more money or a longer runway, blending protects part of that cheap rate while you extend. When your current rate is far above today’s, blending down can cut your payment immediately without a penalty — but compare it against breaking and switching, because sometimes paying a modest penalty on a variable mortgage, or waiting a few months to renewal, produces a much lower rate than any blend your current lender will offer.

“Great rates, fast closing, and excellent customer service.” — Madhav Dhakal, Google review

Photo via Wikimedia Commons.

What are the traps?

You are negotiating with one lender who knows leaving costs you a penalty — the first blended offer is rarely the best that lender can do, and it is never compared against the wider market unless you compare it yourself. Blending also restarts a full term, which can strand you if you expect to move. And a blend-and-increase adds debt against your home: the payment math must work at the stress-test qualifying rate, not just at the blended contract rate. The alternative to compare is switching lenders at renewal, step by step.

Run the three-way comparison — blend, break-and-switch, wait for renewal — before you sign anything. A Mortgage Renewal Check covers the renewal-timing version of that math. See also breaking instead of blending: what the penalty would be.

Your lender offered you a blend? Call me at (780) 722-5621 before you accept — I will run it against the break and wait options on your real balance and penalty.

By Travis Bannert, Realtor and Mortgage Broker

Travis Bannert, Mortgage Broker | Next Door Mortgages, BFL Dominion Lending Centres | (780) 722-5621 | nextdoormortgages.com