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Is Blending and Extending Right For You?

You may be looking at today’s mortgage interest rates and are asking yourself how you can take advantage of these rates. In our previous newsletter from February 2009 we talked about breaking out of your mortgage contract and getting a new mortgage at today’s lower rates. To view the February 2009 newsletter please visit our blog at Two obstacles can arise with this strategy: 1) You do not have the required equity in your home to allow this transaction. 2) The penalty is so high that there is no savings benefit over the long term.

There is another way you may be able to take advantage of the lower interest rates without requiring the equity in your home or paying a large penalty. The strategy is called blending and extending. With this strategy you are not entitled to the lowest mortgage rate available but your current lender will take your existing mortgage rate and blend it with a new 5 year term mortgage. The rate the lender can offer you will depend on the remaining term of your existing mortgage. This means that your blended rate will be better if the term left on your existing mortgage is shorter. In addition your term will be reset again to 5 years so you have extended your mortgage renewal. At the end of the process you will have a new 5 year term mortgage at a lower interest rate than your current interest rate. In our discussion, we talked about using the 5 year term to blend and extend but the lender may offer to use shorter or longer terms as each lenders policy is different. Also you will have to check with your lender to see if they will offer this strategy for you as some lenders may not allow this option.

If you are interested about this strategy and you call your existing lender to inquire about your new blended rate and term, also ask about the penalty to completely break out of your current mortgage. Please then contact us and we can assist and advise you as to whether the blended rate and extended term is better than breaking out of your current mortgage and paying the penalty to take full advantage of the low rates.