Blended Mortgage Rate Calculator

Blended rate mortgages allow homeowners to combine two separate mortgages into a single loan with a new, blended interest rate. This calculation is especially useful for individuals who want to consolidate their loans to simplify payments, as well as to evaluate potential cost savings or impact on monthly budgets.

Historical Background

Blended rate mortgages emerged as a strategy for homeowners to combine existing mortgages with varying interest rates. This approach helps borrowers streamline their payments and potentially reduce overall interest costs by consolidating multiple loans into one. The calculation of the blended mortgage rate became a common practice as more people took on multiple mortgages over time, and the need to understand the impact on long-term financial planning grew.

Calculation Formula

The formulas to calculate the blended rate, monthly payment, and total interest are as follows:

1. Blended Annual Interest Rate: \[ \text{Blended Rate} = \frac{(\text{Mortgage 1 Principal} \times \text{Mortgage 1 Interest Rate}) + (\text{Mortgage 2 Principal} \times \text{Mortgage 2 Interest Rate})}{\text{Total Principal}} \times 100 \]

2. Monthly Payment: \[ \text{Monthly Payment} = \frac{\text{Total Principal} \times \text{Blended Rate}/12}{1 - (1 + \text{Blended Rate}/12)^{-\text{Term in Months}}} \]

3. Total Interest Paid: \[ \text{Total Interest} = (\text{Monthly Payment} \times \text{Months}) - \text{Total Principal} \]

Example Calculation

If you have two mortgages:

• Mortgage 1: $150,000 principal with a 4% annual interest rate
• Mortgage 2: $100,000 principal with a 5% annual interest rate
• Combined Term: 25 years

1. Blended Rate: \[ \text{Blended Rate} = \frac{(150,000 \times 0.04) + (100,000 \times 0.05)}{150,000 + 100,000} \times 100 = 4.44\% \]

2. Monthly Payment: \[ \text{Monthly Payment} = \frac{(150,000 + 100,000) \times 0.0444/12}{1 - (1 + 0.0444/12)^{-25 \times 12}} = 968.15 \text{ dollars} \]

3. Total Interest Paid: \[ \text{Total Interest} = (968.15 \times 25 \times 12) - (150,000 + 100,000) = 144,527.80 \text{ dollars} \]

Importance and Usage Scenarios

Blended rate mortgage calculations are useful when consolidating multiple loans or refinancing existing debt. It allows homeowners to assess how combining loans might affect their financial situation, and whether it would be beneficial to combine them for a lower interest rate, simplified payments, or reduced total interest.

Common FAQs

1. What is a blended mortgage rate?