Ablended rate is a combination of interest rates on multiple loans for an individual or household and calculated as if they were just one rate .
Those very fortunate mortgage borrowers with existing 1st mortgage rates at or below 3 % or 4 % might be hesitant to choose a new cashout refinance 1st loan to pay off their rising unpaid consumer debts that may vary between 10 % and 30 %+ each .
More than 40 % of all U . S . mortgage borrowers funded their purchase or refinance loan in either 2020 or 2021 when rates were at or near historical lows , according to data published by Black Knight . Many homeowners don ’ t want to lose their record low rate by refinancing the mortgage debt or selling , which is akin to a lockin effect .
A blended rate analysis for an existing debt comparison to a new cashout 1st or 2nd mortgage or HELOC ( Home Equity Line of Credit ) can be simplified by comparing the existing monthly debt obligations for the consumer with a proposed new cashout mortgage or HELOC that pays off all of the existing mortgage and / or nonmortgage debt .
For example , the Jacksons have a $ 400,000 1st mortgage that has a 3 % fixed rate for 30 years . They funded the loan near the alltime record low time period in early 2021 and now have just
under 28 years remaining on the loan .
The Jacksons also have $ 50,000 in credit card debt that ’ s compounding at close to 30 % and two used car loans , which combine for another $ 50,000 that average near 12 %. To simplify this calculation , I used the exact same balances for an easier interest rate calculation estimate of 21 % ( 30 % + 12 % = 42 % / 2 = 21 %).
Let ’ s now add the $ 400,000 mortgage at 3 % to the $ 100,000 in credit card and automobile loan debt at 21 % for a grand total of $ 500,000 . Fourfifths ($ 400,000 ) of the Jacksons ’ monthly debt is at 3 % while onefifth ($ 100,000 ) is at 21 %.
• $ 400,000 mortgage balance : 3 % rate
• $ 50,000 credit card balances : 30 % rate
• $ 50,000 automobile loan balances : 12 % rate
• New blended interest rate for all debt : 6.6 %
The Jacksons ’ blended interest rate in this example is 6.6 % for all of their monthly consumer debt when including their mortgage , credit card , and car payments .
The Jacksons explore their HELOC ( Home Equity Line of Credit ) options that would be recorded in second position behind their existing 3 % fixed rate 30year mortgage that they don ’ t want to lose .
As of October 18 , 2023 , the current average HELOC interest rate was 9.02 percent , as per Bankrate ( all rates and fees are subject to change ). Rates , fees , and APRs ( Annual Percentage Rate ) are all over the place , depending upon the lender , borrower ’ s creditworthiness , and daily financial market trends that may rise or fall .
With this HELOC rate estimate provided , we will explore both a 9 % and 10 % HELOC rate to get the Jacksons $ 100,000 to pay off their 30 % credit card and 12 % automobile loan rates .
• $ 400,000 mortgage balance : 3 % rate
• A new $ 100,000 HELOC : 9 % rate
• New blended interest rate for all debt : 4.2 %
• $ 400,000 mortgage balance : 3 % rate
• A new $ 100,000 HELOC : 10 % rate
• New blended interest rate for all debt : 4.4 %
Either way , a new HELOC that ’ s used to pay off consumer debt may decrease the total monthly blended rate for all monthly debt by at least 2 % ( 6.6 % blended rate – 4.2 % or 4.4 % blended rate = 2.4 % to 2.2 % blended rate improvement ).
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