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Guest Post by Chris McCormick

Are You Looking to Access Some Equity in Your Home?

You may be able to do just that by using a mortgage option called, “Increase and Blend.” Essentially, your lender increases your mortgage, and blends the current interest rate with the new interest rate. This works well if you’ve paid down your mortgage or you’ve had an increase in the value of your home, thereby establishing equity.

Here’s an example:

Let’s say your home is currently worth $300,000, and you currently have a conventional first mortgage that you’ve paid down to $150,000. You would like to access some equity in your home to do some improvements or perhaps to invest. Providing you can financially qualify for it, Increase and Blend may work for you. Here’s how:

  • Current Mortgage $150,000 at 5%, 5 years remaining on the term
  • Plus the Increase Amount of $50,000
  • Total New Mortgage $200,000

To figure out the blended rate, we need to establish the current 5 year mortgage rate, which in this case we’ll say is 4%.

$150,000 / $200,000 is 75%, so the existing mortgage will represent 75% of the new total mortgage amount of $200,000
$  50,000 / $200,000 is 25%, so the new increase amount represents 25% of the new total mortgage amount of $200,000

75% x .05          = .0375    (where .05 is the existing 5% interest rate)
25% x .04          = .01          (where .04 is the 4% new interest rate)
Total of above     = .0475   This will be the new blended rate.

The new blended rate for the total new mortgage of $200,000 will be 4.75%.

READ  Collingwood, Blue Mountain and Area Real Estate Market Recap for April, 2019

With the new mortgage of $200,000 and the current value of your home of $300,000, you are well within the parameters of a conventional mortgage at only 67% loan to value, leaving you a bit of a cushion of equity of $100,000.

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Marg Scheben-Edey

Real Estate Broker
Market Value Appraiser - Residential
Accredited Green Broker™
(designated by the National Association of Green Agents & Brokers)

RE/MAX four seasons
realty limited, Brokerage
Each Office Independently Owned & Operated
67 First Street, Collingwood L9Y 1A2

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