Blended Rate Calculator

By Bill Lyons | Published on October 2, 2023

Our blended interest rate calculator is designed to take the guesswork out of the equation. With this calculator, you can effortlessly input multiple interest rates, and it will instantly provide you with a unified, single rate. The blended rate calculator makes understanding interest rates easier, ensuring accuracy.

Keep reading to learn how to calculate a blended rate, and use our calculator to help you.

What Is a Blended Rate?

It’s common for individuals and organizations to juggle multiple loans, investments, and other financial products. Each of these often has a unique interest rate. The blended rate is a tool that unifies these rates into a comprehensive figure.

A blended rate is the average of two or more interest rates, weighted by the balance ratio of each loan or investment. It offers a consolidated view of multiple interest rates, helping to provide a clearer understanding of the combined cost or return on investments.

Imagine having two loans: one with a large balance at a lower interest rate and another with a smaller balance at a higher interest rate. Instead of viewing them separately, a blended rate combines them into one overarching rate that reflects their weighted average.

For instance, if you’re considering refinancing your mortgage with a cash-out refinance to pay off your debts, you might be hesitant to give up your existing interest rate. However, when considering the blended interest rate of all your debts, you might find that a higher mortgage rate actually translates to more savings when compared to the cost of other types of debt, such as credit cards and personal loans.

How to Calculate a Blended Rate

The formula to calculate blended rate is:

Blended rate = (Balance of loan A x Rate of loan A )+ (Balance of loan B x Rate of loan B)/ Total balance of both loans

To help you understand how this formula works for calculating a blended rate, let’s take a look at an example:

Suppose loan A has a balance of $10,000 and an interest of 4%, while loan B carries a balance of $5,000 at 6% interest. Instead of calculating the interest rate separately for each, you can find the blended rate, giving you a combined perspective.

Let’s plug these figures into the formula from before:

Blended rate = ($10,000 x 0.04 + $5,000 x 0.06) / $15,000

= ($400 + $300)/ $15,000

= $700/ $15,000

= 0.046 or 4.67%

The blended rate of these two loan programs is 4.67%.

Ultimately, the blended rate simplifies the process of understanding and managing multiple interest rates. It provides a consolidated viewpoint, which can be beneficial for assessing the total financial impact of various loans or debts.

Calculating a blended rate, especially when multiple debts are involved, can be intricate and time-consuming. The complexity of the process increases with the number of variables, making it harder to calculate accurately. This is where a blended rate mortgage calculator can come in handy.

A blended rate calculator is designed to do the math instantaneously. By simplifying the necessary values, you get your result in a matter of minutes. Additionally, while our example dealt with two loans, real-life scenarios might deal with multiple debts. A calculator can efficiently handle various variables, giving you a blended rate without the headache of extensive computations.

How Does the Blended Rate Calculator Work?

Our blended rate mortgage calculator is designed to streamline the process of determining the weighted average interest rate across multiple loans or debts. Here’s a step-by-step guide on how to use it, followed by its advantages.

Follow these steps on how to use our blended rate calculator:

1. Input loan and debt details: Start by entering the principal amounts for each of your loans into the designated fields.
2. Enter corresponding interest rates: For each principal amount you’ve entered, input the corresponding interest rate. Make sure you enter the rate as a percentage.
3. Calculate: Once all values are entered, press the ‘calculate’ button.
4. Review results: The calculator will quickly compute and display the blended interest rate, providing a single, weighted average rate that reflects all the debts you’ve entered.

As you can see, our blended rate calculator is much faster than manual calculations and can provide clarity in financial planning. By understanding the true cost of multiple loans, you can better assess the affordability and risk, especially when considering refinancing or consolidating loans.

If you’re contemplating taking on another loan, you can easily modify the inputs of this blended rate calculator to determine how it affects your interest rate. There are several scenarios when using this blended rate calculator is beneficial, such as:

• Home financing: If someone has a primary mortgage and is considering a second mortgage, cash-out refinance, or other types of home loans, a blended rate calculator can help you understand the combined rate of both loans.
• Business financing: A blended rate calculator can assist in understanding the collective interest burden of multiple loans or lines of credit.
• Loan consolidation: Before consolidating loans, you can use the calculator to understand the overall interest you’re paying, allowing the blended rate calculator to guide whether consolidation offers a better rate. Once you know your blended rate on all of your debts, you can then use our debt consolidation calculator to determine your monthly savings.

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Should You Use a Blended Rate?

Understanding your overall financial burden is crucial when contemplating a significant decision like obtaining a second mortgage or opting for a cash-out refinance. The blended rate can help you determine the right time to make one of these commitments. Of course, there are several considerations to keep in mind, such as:

• Current financial situation: Before deciding whether to refinance or take out a second mortgage, you should evaluate your existing debts, including the primary mortgage, personal loans, and credit cards.
• Duration: How long do you plan to stay in your home? If you intend on moving in a few years, the costs associated with refinancing might not be justified.
• Closing costs: Both second mortgages and cash-out refinances have closing fees. Factor those in when calculating the overall financial impact of each.

So, when should you use a blended rate? Ultimately, by understanding the blended rate, you can get a clearer picture of the overall interest you’re paying on your home and other types of debt to help you decide if a second mortgage or restructuring the current one via refinance is viable.

For example, say you need to take out a loan to pay for medical bills. If the interest rate on your credit card is 22% and the interest rate for a personal loan is 17%, it might make sense to refinance your home at 8%, even if that means taking on a higher mortgage rate.

With a blended rate, you can compare your options and their potential interest rates to help you choose a more affordable solution based on your needs. Knowing the combined impact on your finances allows you to make more informed decisions, ensuring that monthly payments are manageable.

Keep in mind that using blended rates to compare loan and debt options isn’t a perfect solution. Relying solely on this number can cause you to miss out on the specific details of each financial product. For instance, a second mortgage, like a home equity loan, might have additional fees or a variable rate.

At the same time, a favorable blended rate can provide a sense of security that makes someone more inclined to take on additional debt without evaluating other critical factors. Focusing too much on the blended rate and neglecting other considerations like the loan term, repayment flexibility, annual percentage rate, and potential penalties might increase the risk of financial strain in the future.

Final Notes

A blended rate can offer clarity and a consolidated perspective on multiple loans and debts, giving businesses and individuals a better understanding of their financial options. Our blended rate calculator bridges the gap between intricate calculations and simplicity. The calculator provides immediate results by inputting a few key figures, eliminating guesswork while ensuring accuracy.

Griffin Funding understands that these financial decisions are about more than just numbers; they’re about your dreams, security, and financial future. Let us be your partner in navigating the different types of mortgages and how they might affect you. Whether you’re considering refinancing or a new mortgage, we’re here to help from the mortgage underwriting process through loan closing. Apply for a mortgage online today.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.