Definition
The blended rate is a mechanism by which a lender merges an existing mortgage with additional financing to create a single new loan, whose rate is the weighted average of the two components.
Example: a borrower has a balance of $300,000 at 4.5% with 2 years remaining on their term. They want to borrow an additional $100,000 (refinancing). The blended rate would be calculated approximately as follows: - (300,000 × 4.5%) + (100,000 × current market rate) ÷ 400,000 - If market rate is 5%, blended rate ≈ (13,500 + 5,000) ÷ 400,000 × 100 ≈ 4.625%
Advantage of blended rate: the lender grants this option without requiring payment of the mortgage break penalty (IRD or 3 months' interest), because the loan is not broken — it is merged. In return, the new term generally restarts at 5 years (or the chosen term), even if the old mortgage had 2 years remaining.
Constraint: available only with the current lender. Incompatible with changing lenders.