Blended Rate Calculator

A blended rate is a single interest rate that combines multiple debts. You don't have to use separate rates for your mortgage, car loans and credit card balances. Instead you can calculate a weighted average that reflects the true cost of all your loans. When you enter each balance and interest rate this tool will calculate the blended rate, total amount of debt and monthly and annual costs of that debt.

What is a mixed interest rate?

A blended interest rate is also called a weighted average interest rate. It combines the interest rates of two or more loans into one number. The interest rates are weighed according to how much each balance is, so larger loans have more influence than smaller ones. When a borrower refinances their loan before it's due, lenders use the same method to combine the old and new interest rates in order to avoid penalties for early repayment. Buyers sometimes face this scenario when they take out both a first and second mortgage at the same time, financing almost all of the purchase price with loans.

Here's how to use this tool:

Enter the balances and interest rates of your first two debts to see the blended rate instantly. By activating additional debts you can add a third, fourth or fifth balance so that in total you can enter up to five debts. Debts with a zero balance will be automatically ignored. The built-in calculator allows you to enter a proposed rate and check whether it would be cheaper to consolidate all your debts into one loan. A detailed table and balance chart shows how each debt affects the average.

Understanding of calculation method

The weighted average interest rate is calculated by multiplying each balance by its respective interest rate, adding the results together, and then dividing that sum by the total of all balances.

Suppose one account of $100,000 has an interest rate of 2.5 percent while another account of $20,000 has an interest rate of 4 percent. The products are multiplied and added then divided by the total amount of credit ($120,000).

The result is between the two interest rates but closer to 2.5 percentage points because of the much larger corresponding balance. The following table shows the individual input values and an example.

It is a weighted average, not a simple average.

A common mistake is to simply average the interest rates. The simple average of 2.5 and 4 percent would be 3.25 percent while the actual blended rate is 2.75 percent. This is because the larger balance has more influence. This tool shows both values so you can see the difference. The greater the difference between the balances, the further the weighted average will deviate from the simple average.

The same rules apply to balances with a 0% interest rate. These balances are included in the total, and therefore lower your average APR, even though no interest is accruing. This shows why weighting is important. Both the amount of the balance and the interest rate affect the final value.

The role of the weighted interest rate:

A weighted average interest rate can be used to summarize complex debts into a single number that can be used for decision making. Compare this with current offers for debt refinancing or consolidation loans. If you could get a loan at an interest rate lower than the weighted average and cover all of your debt, then a single loan is usually cheaper. It also helps in deciding which debts to pay off first since paying down the balance with the highest interest will reduce the weighted average fastest. Companies use it to capture the total cost of their various credit agreements while buyers can use it to compare a combination of first and second mortgages against a single loan.

Tips for meaningful results:

Use the current outstanding balance instead of the original loan amount to reflect your current situation in the weighted result. If possible, enter the interest rate and not the APR, as the weighted interest rate only considers the cost of interest while fees can vary from loan to loan. Remember that the weighted interest rate reflects the cost but not the length of time. Even if two loans have the same weighted interest rate, they may pay off very differently.

This tool is for informational and planning purposes only. It does not constitute financial advice. Interest rates, fees, and terms may vary by lender, and actual debt consolidation or refinancing terms will depend on your creditworthiness and market conditions. Consult a qualified professional before making any borrowing decisions.