Blended Interest Rate Calculator
Calculate weighted-average blended interest rate across up to 5 loans or accounts.
Used for debt consolidation, refinancing analysis, and effective borrowing cost.
Blended Rate = Σ(Balance × Rate) / Σ(Balance). It is a weighted average of interest rates, weighted by loan balance. Useful when you have multiple loans (mortgages, student loans, credit cards) and want to know the effective borrowing cost.
The formula in detail:
Blended Rate = (B₁ × r₁ + B₂ × r₂ + … + Bₙ × rₙ) / (B₁ + B₂ + … + Bₙ)
Where Bᵢ is the balance and rᵢ is the rate of loan i.
The simple-average mistake. People often want to average rates by counting loans equally. That is wrong unless balances are equal. Two loans:
- Loan A: $50,000 at 6%
- Loan B: $200,000 at 4%
- Simple average: 5%
- Blended (weighted) rate: (50K × 6 + 200K × 4) / 250K = (3,000 + 8,000) / 250 = 4.4%
The big loan dominates. Decisions based on the simple average lead to wrong refi conclusions.
When blended rate matters most.
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Refinance decisions: When considering refinancing multiple loans into one, compare the new offer to the blended rate of the existing loans. A 5.5% consolidation loan does NOT save money against the 4.4% blended rate above, even though it beats Loan A’s 6% rate.
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Debt avalanche optimization: Pay down the highest-rate loan first. Knowing the blended rate tells you the average effective cost; comparing each loan’s rate to it reveals priorities.
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Mortgage assumption / loan portfolio analysis: Real estate investors with multiple property mortgages use blended rate for portfolio cash flow modeling.
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Student loan management: Blended rate matters for income-driven repayment plan analysis. Federal loans often have different rates by year (rates change every July 1); a blended rate gives the effective borrowing cost.
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Corporate treasury: Companies with multiple revolvers, term loans, and bonds compute blended cost of debt as an input to WACC.
Variations.
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Effective annual blended rate: if some loans compound monthly and others daily, convert all to effective annual rate first, then blend. The simple weighted average can mislead when compounding frequencies differ.
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After-tax blended rate: for tax-deductible interest (mortgage, student loan), use after-tax rate (rate × (1 - marginal tax rate)) before blending.
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Future-state blended rate: When considering paying down one loan early, recompute blended rate as if that loan is gone. Show whether the remaining blend is higher or lower than current.
Worked example — debt consolidation analysis. A consumer with:
- Credit card 1: $8,000 at 24%
- Credit card 2: $5,000 at 19%
- Auto loan: $15,000 at 7%
- Student loan: $32,000 at 5.5%
- Total: $60,000
Blended Rate = (8,000 × 24 + 5,000 × 19 + 15,000 × 7 + 32,000 × 5.5) / 60,000 = (192,000 + 95,000 + 105,000 + 176,000) / 60,000 = 568,000 / 60,000 = 9.47%
A consolidation loan offer at 11% would NOT save money — the blended rate is already 9.47%. But the consumer should still consider:
- Paying off the credit cards first (they pull the blended rate up dramatically)
- After CCs are gone, the new blended rate of remaining $47K is (15K × 7 + 32K × 5.5) / 47K = 5.96%
That suggests the consolidation loan only makes sense if it specifically refinances the credit card debt below 11%, leaving auto and student loans intact at their current low rates.
The “minimum payment trap.” Even at a 9.47% blended rate, paying just minimums on credit cards (typically 2-3% of balance) means decades of repayment. The blended rate calculation shows the cost; the avalanche method of paying highest-rate first solves the problem.
Limitations.
- Blended rate ignores loan term differences. A 30-year mortgage at 4% and a 6-month credit-card revolver at 20% blend to one number that hides very different payoff timelines.
- It does not account for prepayment penalties, callable provisions, or balloon payments.
- For mortgages with PMI, the effective borrowing cost is higher than the stated rate; blended rate as commonly calculated misses that.