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Understanding Blended Mortgages in Canada

CompassNorth Editorial Team · Updated September 2026 · 6 min read

If your mortgage rate has changed since you signed your current term, you may be offered a blended rate instead of being told to break your mortgage. Blending can save you the cost of a prepayment penalty — but it isn’t automatically the cheaper option. Here’s how it actually works.

What is a blended mortgage rate?

A blended rate combines your existing mortgage rate with a new rate, weighted by how much time (or balance) is left on each. Instead of paying a prepayment penalty to break your current term and re-lock at today’s rate, your lender calculates a single new rate that reflects both.

Lenders use this mainly in two situations: when you want to access more money before your term ends (a blend-and-increase), or when you want to lock in a new, longer term partway through your current one (a blend-and-extend).

How the blended rate is calculated

There’s no single formula every lender uses, but the general idea is a weighted average: the portion of your remaining term at your old rate, plus the portion of the new term at the new rate, weighted by balance and time remaining. The result usually sits between your old rate and the lender’s current posted rate for the new term — rarely as low as their best discounted rate.

  • You typically will not pay a prepayment penalty
  • The blended rate is usually higher than a fully fresh, discounted rate
  • Terms and amortization can reset, so read the new agreement carefully

When blending can save you money

Blending tends to make sense when rates have risen since you locked in and your remaining term is long enough that a penalty (especially the interest rate differential, or IRD, on a fixed mortgage) would be substantial. In that case, avoiding the penalty can outweigh paying a somewhat higher blended rate.

When it can cost you more

If your remaining term is short, or your penalty would be small (variable-rate mortgages, for example, are only charged three months’ interest), breaking the mortgage and re-locking at a fresh discounted rate may cost less overall than accepting a blended rate for a full new term. The only way to know is to compare both numbers directly.

Compare the numbers before you decide

Use our Mortgage Refinance & Penalty Calculator to estimate what breaking your mortgage would actually cost, then compare that against a blended-rate offer from your lender.

Open Refinance & Penalty Calculator

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