This is where the concept of weighted balance debt comes into play. By leveraging a second mortgage at a higher interest rate instead of refinancing your entire mortgage, you can maintain a lower overall blended interest rate on your total debt.
What Is Weighted Balance Debt?
Weighted balance debt refers to the combined interest cost of multiple loans, calculated based on their respective balances and interest rates. For example, instead of refinancing your existing mortgage into a new one at current higher rates, you keep your original mortgage at its lower rate and add a second mortgage at a higher rate to access additional funds. This approach allows you to spread the overall interest burden across both loans, often resulting in a more affordable blended rate.
Why Not Refinance?
Refinancing a mortgage means replacing your existing mortgage with a new one, often at a higher interest rate when market rates increase. While refinancing provides access to the equity in your home, it can come with:
- Higher overall interest costs on the entire loan balance.
- Early payout penalties from your current mortgage lender.
- Additional fees for appraisals, legal services, and other refinancing costs.
By choosing a second mortgage instead, you bypass these drawbacks and preserve the lower interest rate on your primary mortgage.
How Does Blended Interest Work?
To calculate the blended interest rate of a weighted balance debt, the interest rate of each loan is weighted according to its balance. For instance:
- First Mortgage: $400,000 at 3% interest = $12,000 annual cost.
- Second Mortgage: $100,000 at 9% interest = $9,000 annual cost.
The total debt is $500,000, with a combined annual interest cost of $21,000. The blended rate is:
$21,000 ÷ $500,000 = 4.2%.
By comparison, refinancing the entire $500,000 at the current market rate of 6% would result in a $30,000 annual interest cost—significantly higher than the weighted approach.
Benefits of a Second Mortgage
- Cost Savings: Retain your existing mortgage's low rate while borrowing additional funds at a higher rate, reducing the overall interest burden.
- Flexibility: Access home equity without disturbing your primary mortgage.
- Speed: Second mortgages, especially with Lendworth, are approved quickly—often in as little as 48 hours.
How Lendworth Can Help
At Lendworth, we specialize in equity-based lending, offering competitive private mortgage solutions to homeowners looking for alternatives to refinancing. Our team provides quick approvals and works with you to craft a financial strategy that minimizes costs and meets your needs.
If you’re interested in exploring a second mortgage to take advantage of weighted balance debt, contact us today! Our experts will guide you through the process and help you save money even in a high-interest-rate environment.
Unlock your home’s potential without sacrificing your financial stability—choose Lendworth.