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Investor Alert: Increase and Blend your Mortgage

Posted by Sherry Rioux on September 17, 2012

Guest Post by Chris McCormick

Are You Looking to Access Some Equity in Your Home?

You may be able to do just that by using a mortgage option called, “Increase and Blend.” Essentially, your lender increases your mortgage, and blends the current interest rate with the new interest rate. This works well if you’ve paid down your mortgage or you’ve had an increase in the value of your home, thereby establishing equity.

Here’s an example:

Let’s say your home is currently worth $300,000, and you currently have a conventional first mortgage that you’ve paid down to $150,000. You would like to access some equity in your home to do some improvements or perhaps to invest. Providing you can financially qualify for it, Increase and Blend may work for you. Here’s how:

  • Current Mortgage $150,000 at 5%, 5 years remaining on the term
  • Plus the Increase Amount of $50,000
  • Total New Mortgage $200,000

To figure out the blended rate, we need to establish the current 5 year mortgage rate, which in this case we’ll say is 4%.

$150,000 / $200,000 is 75%, so the existing mortgage will represent 75% of the new total mortgage amount of $200,000
$  50,000 / $200,000 is 25%, so the new increase amount represents 25% of the new total mortgage amount of $200,000

75% x .05          = .0375    (where .05 is the existing 5% interest rate)
25% x .04          = .01          (where .04 is the 4% new interest rate)
Total of above     = .0475   This will be the new blended rate.

The new blended rate for the total new mortgage of $200,000 will be 4.75%.

With the new mortgage of $200,000 and the current value of your home of $300,000, you are well within the parameters of a conventional mortgage at only 67% loan to value, leaving you a bit of a cushion of equity of $100,000.

One thought on “Investor Alert: Increase and Blend your Mortgage

  • on November 19, 2012

    If your mortgage rate is higher than the current market rate, then blending your mortgage may be very well worth considering. It is best, however, to check how much you can save with the blended interest rate before deciding on.

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