What is a blended payment?

A blended payment refers to a payment structure that combines both principal and interest into a single payment amount. This means that when a borrower makes a blended payment, they are not just paying off the interest accrued on the loan, but also contributing to the repayment of the principal balance. This is a common practice in mortgages, where the payment amount is consistent over time, yet it gradually shifts the ratio between principal and interest as the loan is paid down.

Over the course of the loan, in earlier payments, a larger portion typically goes towards interest, while later payments increasingly chip away at the principal. This method allows borrowers to see their loan balance decrease over time while maintaining predictable monthly payment amounts.

In contrast, options that suggest a payment covering only interest or only principal do not reflect the comprehensive nature of blended payments, while a fluctuating payment does not align with the stability typically associated with blended payments in mortgage agreements.