Keeping a low first-mortgage rate and adding a second loan can beat one new loan. The blended rate shows which.
How it works
Blended rate = (balance 1 × rate 1 + balance 2 × rate 2) ÷ (balance 1 + balance 2)
It is the average rate weighted by how much you owe on each loan. Add the years left on each loan to compare the combined monthly payment with one new loan’s payment.
Keep in mind
- A HELOC rate is usually variable, so its share of the blend can change.
- Closing costs and the remaining terms of each loan also matter; this compares rates only.
Questions
What is a blended mortgage rate?
The average interest rate across two loans, weighted by their balances. The larger balance pulls the average toward its own rate, so a small second loan at a higher rate moves the blend only a little.
When is a second mortgage better than a cash-out refinance?
Usually when your first mortgage rate is well below today’s rates and the second loan is a small share of the total. See also: Cash-out refinance.
