Blended Rate Mortgages: Renewing Without Penalty

Rates have dropped and you want to take advantage, but you don't want to pay a big penalty? A blended rate mortgage might be your solution—allowing you to get a lower rate without breaking your current mortgage.

What Is a Blend-and-Extend?

A blended rate mortgage combines:

• Your current mortgage rate
• Today's available rate
• Into a new "blended" rate

You get a lower rate without paying the full penalty for breaking your mortgage, and you extend your term.

How the Blended Rate Is Calculated

Simplified formula:

Blended Rate = (Old Rate × Remaining Balance × Remaining Term) + (New Rate × Remaining Balance × New Term Extension) ÷ Total Combined Value

Example:

• Current rate: 5.5%
• Remaining term: 2 years
• New 5-year rate available: 4.5%
• Blend-and-extend to new 5-year term

The blended rate might be around 4.8% (weighted average based on time).

When Blend-and-Extend Makes Sense

✓ You want to lower your rate now
But don't want to pay the full break penalty.

✓ Your lender offers competitive new rates
Not all lenders price blend-and-extend attractively.

✓ You plan to stay in the home
You're committing to a new term.

✓ You have a fixed-rate mortgage
Variable rates typically have low penalties anyway (3 months interest).

When It Doesn't Make Sense

✗ You're close to maturity
If you have less than a year left, just wait for renewal.

✗ New lender rates are much better
Sometimes paying the penalty to switch is better math.

✗ You might move soon
A blend-and-extend locks you into a new term.

✗ Your lender's blend calculation is unfavorable
Not all blends are created equal.

Comparing Your Options

Questions to Ask Your Lender

1. What blended rate can you offer?
2. How is it calculated?
3. What would my new term be?
4. What would my penalty be if I switched instead?
5. Can I see both options in writing?

Beware of Poor Blend Calculations

Some lenders use unfavorable calculations:

Watch for:

• Using posted rates instead of discounted rates
• Heavily weighting the old rate
• Adding fees that offset savings
• Requiring minimum term extensions

Always compare the blend-and-extend against paying the penalty and switching. Sometimes breaking is better.

Case Study: Blend vs Break

Situation:

• Current rate: 5.5%, 3 years remaining
• Balance: $400,000
• Break penalty: $12,000 (IRD)
• New rate if break: 4.0%
• Blend-and-extend offer: 4.6%

Option 1: Blend-and-extend to 4.6%

• Monthly payment drop: $210
• 5-year savings: $12,600
• Net benefit: $12,600

Option 2: Break and get 4.0%

• Penalty: $12,000
• Monthly payment drop: $350
• 5-year savings: $21,000
• Net benefit: $9,000

In this case, blend-and-extend is actually better despite the higher rate, because you avoid the penalty.

The Early Renewal Without Penalty Myth

Important: blend-and-extend isn't "free"—you're paying for the blend by accepting a rate that's higher than today's best rate.

You trade a large one-time penalty for a slightly higher rate over your new term.

FAQ

Q: Do all lenders offer blend-and-extend?
A: Most major banks and some other lenders do. Not all terms are equal—compare offers.

Q: Can I blend-and-extend with a new lender?
A: No. This is an in-house option with your current lender only. Switching always requires either penalty or waiting for renewal.

Q: Can I change from fixed to variable in a blend?
A: Typically no. Blends usually stay within the same rate type.

Q: How many times can I blend-and-extend?
A: Technically unlimited, but each blend extends your term and may not always be favorable.

Q: Is blend-and-extend available for HELOCs?
A: No. Blend-and-extend applies to term mortgages, not lines of credit. See our HELOC guide for alternatives.

What's Next

Blend-and-extend is one tool in your mortgage optimization toolkit. Compare it against other options like early renewal or switching lenders to find the best path.