For those of you with a first and second mortgage on your home, your Blended Rate is the equivalent interest rate that you would be paying if you had all of your current mortgage debt in just one loan. Since most second mortgages are based on the Prime Rate, which has more than doubled in the past two years, your blended rate has become more and more important. This is the number that you should evaluate when considering a potential refinance!

 

To clarify what I’m trying to say, let’s consider an example. Let’s assume one of my clients has a first mortgage of $400K at a fixed rate of 5.25%, and they also have a $200K Equity Line at the Prime Rate, currently 8.25%. So, what is this person’s Blended Rate?

 

There are two easy ways to calculate your Blended Rate.

 

One is to use the following formula:

 

(( Amount of 1st ) * ( Rate of 1st )) + (( Amount of 2nd ) * ( Rate of 2nd ))
(Amount of 1st) + ( Amount of 2nd)

 

So, for our client, we have:

 

( $400K * 5.25% ) + ( $200K * 8.25% )   = 6.25%
($400K + $200K)                 

 

A Blended Rate of 6.25% means that this person is paying the same amount of interest on their current first and second mortgage as they would be with a single loan at 6.25%. Once the Blended Rate is known, it is much easier to compare ones current loans with any proposed loans.

 

 For example, if I offered this client a new mortgage of the same type at 6.0%, with no Points and no closing costs, then that would clearly be a better deal than 6.25%. An offer of 6.375%, however, would clearly be one to pass on.

 

Given the abundance of equity lines and fixed rate second mortgages, one should keep at least one eye on what your blended rate is and how it compares to the mortgage rate market! I continue to encounter clients with a low rate first mortgage and a large second mortgage at around 8% or higher. They never want to redo their first loan because those rates are temporarily gone, but if they don’t, they actually wind up paying quite a bit more than if they did refinance.

 

The second easiest way to calculate your Blended Rate is to email me at AJ.Nisen@bankofamerica.com. All I need is: - Amount & Rate of your 1st Mortgage - Amount & Rate of your 2nd Mortgage.  I would be happy to calculate your blended rate for you and to tell you how it compares with other options.

 

If you have any questions or topics you would like discussed, please contact me at 925-963.5836 or email me at AJ.Nisen@bankofamerica.com     

 
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Best Regards
AJ Nisen