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Learn About Blends, Extends & Early Renewals

Early Renewal
Some financial institutions allow their mortgage holders to renew before the term has expired by paying a small administration fee. This would be a good option to examine if current interest rates are considerably lower than what you are paying on your mortgage and if you intend to average down to a lower mortgage payment. A simple example of how this works is as follows.

Your are 5 years into a 10 year term.
Your interest rate is 10%
The current 10 year rate (it does not have to be the same term) is 5%.
By renewing early at 5% you extend your mortgage term to 10 years, but your blended rate is 7.5% over the entire 10 year term.

Obviously it may be more complicated than the example above, but an The Mortgage Centre Mortgage Consultant can do the work for you and help you find a mortgage rate that is satisfactory.

Increase & Blend
If you've paid down your mortgage and / or your home value has increased, and you would like to release some of the equity, it may be possible to increase and blend. A blend allows you to increase your existing mortgage and the new funds will be at current prevailing mortgage rates which will be blended with your current rate proportionally. Consider the following scenario:

Your current home value is $200,000 and your mortgage is $100,000
Your interest rate is 6.5% with 3 years remaining.
You desire an additional $25,000 for home renovations.
Current interest rates for the remaining 3 year term are 7.5%
You have qualified for the increase with your lending institution at the new blended rate.

New mortgage	$125,000
Existing mortgage of $100,000	80%
New mortgage of $25,000	20%
New blended rate (.86.5 + .27.5)	6.7%

Keep in mind, that in many cases the lender will round this rate up to the nearest 1/8th or 1/4 of a percent – i.e. 6.75%.

Blend & Extend
Now that you understand early renewal and increase and blend, we can look at what it means to blend and extend – this is where you decide to increase your mortgage and also renew to a different term. Consider the following scenario:

Current interest rates for a five year term are 7.75%.
Your blended mortgage is $125,000 at a rate of 6.7% for the next three years.
You want to extend your mortgage to 5 years.

Five year term	60 months
Remaining 3 years (36 months)	60%
Two year extension (24 months)	40%
New rate (.66.7 + .47.75)	7.12%