What is a blended rate?

The rate you are paying on your overall investment when combining all mortgages is your blended rate. The formula to determining your blended rate is simple. You will need 3 numbers to make this calculation:

1. Balance on each mortgage individually
2. Balance of mortgages combined
3. Interest rate on each mortgage

Take your mortgage balance on the first (1) and divide it by the total debt (2) and multiply the results by the interest rate on that mortgage. Do the same thing for the HELOC or fixed rate second. Divide the balance on the HELOC by the total debt of both mortgages and multiply the results by the interest rate on the HELOC. Add these 2 results together to determine your blended rate.

Here is an example of determining your blended rate based on a $200,000 first mortgage at 6.5% and a $100,000 HELOC at 9%:

$200,000 / $300,000 = 0.667 x 6.5 = 4.3355

$100,000 / $300,000 = 0.333 x 9.0 = 3.0000

4.3355 + 3.0000 = 7.3355% blended rate

Knowing what your blended rate is will help determine when is the right time to refinance. The above example is a marginal case and may benefit from a refinance.

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