While mortgage interest rates are still at historically low levels, home values are starting to work their way back up after a long period of depressed prices. This means that people who had had their eye on a house even a few months ago and now have their down payment and credit in order may find that the house has already sold and others in the same neighborhood have seen their values climb. In order to gain financing, these buyers may rely on two mortgages to get close to 100 percent financing. Still other buyers may need to finance the whole purchase — in either case they are looking for two mortgages. Whether you’re looking for a new loan or refinancing an existing mortgage, it’s possible to use a blended (or combination) mortgage to get the money that you need.
Calculating Blended Rate Mortgage
One of the most important numbers in a mortgage decision is the interest rate. You might be more concerned about the purchase price or your mortgage payment, because the interest rate is the smallest number. However, if you are amortizing your loan over 25 years, the difference between 4 percent and 4.25 percent is significant. If you are financing $500,000 at 4 percent over 25 years, your payment each month will be $2,639 — which means you pay out $791,755 over those 25 years. If your note comes with a 4.25 percent interest rate, though, that payment goes up to $2,709. That’s only $70 more per month, but over the life of the note you’ll end up paying a total of $812,607 if the rate stays constant, so almost $21,000 more than you would have at 4 percent.
When you get two mortgages, you’re dealing with two interest rates — and each loan will have its own rate. The second loan (generally the smaller one) will have a higher interest rate because it is the junior lien and comes with a higher degree of risk, because in the case of default, the first loan has to be paid first out of the proceeds.
It can be confusing to figure out what the effective interest rate is for a particular loan. The purpose for this blended rate mortgage calculator is to help you understand what kind of interest you’re really paying on the money. You input the amount of each of the loans and the interest rates. The calculator tells you the monthly payment for each loan, as well as the remaining balances on each loan as you move from one year to the next. You also see the blended mortgage rate so you understand that factor in the real cost of the financing. This helps you shop for the best pair of loans for your needs.