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Blended Mortgage
A blended mortgage combines your existing mortgage rate with a new rate into a single weighted-average rate, without breaking your contract. It lets you access a lower rate, a longer term, or more funds while avoiding the prepayment penalty that comes with breaking a mortgage early.
Blended Mortgage Quick Facts
- Mixes your current rate with a new rate
- Avoids the prepayment penalty of breaking early
- The new rate lies between your old rate and the prevailing rate available
- Can extend the term or add funds
- Offered at the lender’s discretion, not guaranteed
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What Is a Blended Mortgage
A blended mortgage is an early renewal option, not a separate product. Your lender combines the rate on your current mortgage with today’s rate to set a single blended rate that lands between the two, so you keep your existing mortgage rather than break it.
The main forms are blend and extend, which reset your term to a new full term, and blend to term, which applies the blended rate only for the time left. A blend and extend can also let you add funds, though increasing the balance (past what’s registered on your collateral charge) may be treated as a refinance.
Why a Blended Mortgage Matters for Mortgages
A blended mortgage lets you take advantage of lower rates without incurring the cost of breaking your contract. Lenders set the blended rate, and the Financial Consumer Agency of Canada (FCAC) explains that they “get this rate by combining your mortgage interest rate and the current rate.”
The big advantage is avoiding the prepayment penalty, often an interest rate differential (IRD) charge, that applies when you break a fixed-rate mortgage. The trade-off is that a blended rate is usually higher than the lowest available new rate, so it is worth comparing against the cost of breaking and refinancing.
Common Types of Blended Mortgages
Canadian lenders usually offer a few blending options.
Blend and extend. Combines your current rate with a new rate and resets the clock to a full new term, often five years. It suits borrowers who want longer rate stability.
Blend to term. Applies the blended rate only for the time remaining on your current term, with no extension. It suits borrowers who expect rates to keep falling.
Blend and increase. Blends the rates while adding to the balance so you can access equity, though the added amount may be treated as a refinance depending on how your mortgage is registered.
For example, you have 3 years left at 5%, and your lender offers 3.50% on a new 5-year term. A blend-and-extend might set your rate near 4.40% for a fresh 5 years, letting you lower your rate without paying a penalty to break the mortgage.
Common Mistakes and Misunderstandings About Blended Mortgages
- Thinking that a blended mortgage is a separate loan product
- Assuming the blended rate is the lowest available rate
- Forgetting that adding funds may count as a refinance
- Believing every lender offers blending
- Overlooking whether breaking your mortgage to refinance it would cost less
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Frequently Asked Questions (FAQ) About Blended Mortgages
What is the difference between a blended mortgage and refinancing?
A blended mortgage keeps your existing contract and avoids a prepayment penalty by mixing rates. Refinancing replaces the mortgage entirely and can trigger a penalty to break the current one.
Does a blended mortgage avoid the prepayment penalty?
Yes. Since you are not breaking the contract, you avoid the penalty that applies when you break a fixed mortgage early, though administrative fees may apply.
What is the difference between blend, extend, and blend-to-term?
Blend and extend resets your mortgage to a new full term. Blend to term applies the blended rate only for the time left on your current term.
Is a blended rate lower than my current rate?
Usually, if market rates have fallen, the blended rate lies between your old rate and the lower new rate. It is rarely the lowest rate on offer.
Can I get a blended mortgage in Canada with any lender?
No. Blending is offered at the lender’s discretion, and some only allow it when porting. Check with your lender about the options available.