A blended rate – also called a net effective rate – reflects the total rate of all your debt. We break out the balances owed and at what rate and we can calculate the blended rate to get a more true picture. This can help you determine if refinancing for debt consolidation purposes makes sense.
I recently went through this exercise with a client that owed a whopping $124,000 in credit card debt. In calculating the total of the debt at their respective interest rates, his blended rate for all cc debt came out to 23.034%. By consolidating these into a much lower fixed rate 2nd mortgage at a rate of 9.0% (APR 9.295%), fixed for 30 years for the life of the loan, they are saving over 14% just in interest. The fixed rate mortgage is fully amortizing, so they are guaranteed to be paying down on principal; in addition, saving nearly $2500 per month, so cash flow is significantly impacted in a positive way.
We can also review the blended rate to include the 1st mortgage. With where current market interest rates are at when compared to what most homeowners are locked in at, this doesn’t make as much sense, but it is prudent to do that review and analysis as well.
Contact me to review your scenario.
