For each amortization you enter below, please make sure they all have the same payment period.
Amortization 1
Balance
$
Rate
%
Amortization 2
Balance
$
Rate
%
Amortization 3
Balance
$
Rate
%
Final output
The effective blended rate for the entered balances with their corresponding interest rates is 9.902%.
The total balance of the balances entered above is $10,200.

This blended rate calculator will help you determine the average blended interest rate of multiple mortgages, debts, loans, or any other amortizations you might have.

In this blended rate or blended interest rate calculator, you will learn what blended rate is, how to calculate blended rate, and some applications of blended rates. Keep on reading to learn more.

What is blended rate?

The blended rate is the weighted average of the interest rates of two or more amortizations combined into one single balance. These amortizations could have the same or different interest rates, but they all should have the same payment period.

If we follow these criteria, we can then use their blended rate to simplify the computation of interest or compare this blended rate to the interest rate of a single payment plan that another lender might offer.

How to calculate the blended rate?

Now that we know what blended rate is, let us discuss how to calculate the blended rate. Determining the blended rate is quite an easy process. To calculate the blended rate, we have to sum up all the interests of each amortization concerned and divide this sum by the total of the balances (the money we owe) for the payment period we consider. We can express it in equation form, as shown below:

blended rate = sum of all the interests / total balance

where

  • sum of all the interests is the sum of all the interests for the period; and
  • total balance is the total of all the balances for the period.

We can rewrite it in a different form:

blended rate = Σ(balances * rates) / Σ(balances)

In the second equation shown above, the Greek symbol sigma, Σ(), denotes the summation of all the items indicated in the parentheses. To further understand how to calculate blended rates and some of its applications, let us consider two different scenarios and their sample calculations in the next section of this text.

Sample calculations of blended rates

For the first of our two examples, let's say you used your credit card to purchase the following items for your newly-built workshop. However, because you bought these items from different stores, you got a variety of monthly interest rates to be calculated on the outstanding balances. Listed in the table below are the monthly balances for each item, their corresponding interest rates, and their payment periods:

Store
Purchased
items
Balances
Interest
rates
Payment
periods
A
laser printer
$2,000
2%
6 months
B
3D printer with filaments
$3,000
4%
10 months
C
plotter cutter
$200
3%
3 months

Since each purchase's payment period is monthly, we can solve their blended rate. However, after three months, since we will have paid off the plotter cutter, we don't have to include it in further computations.

Let's calculate the blended rate for these three items for the first payment period. Our solution would be as follows:

blended rate = sum of all the interests / total balance

blended rate = ($2,000 * 2% + $3,000 * 4% + $200 * 3%) / ($2,000 + $3,000 + $200)

blended rate = ($2,000 * 0.02 + $3,000 * 0.04 + $200 * 0.03) / $5,200

blended rate = ($40 + $120 + $6) / $5,200

blended rate = $166 / $5,200 = 0.031923 = 3.192%

With the given balances and interest rates, we get 3.192% as their equivalent blended interest rate on top of a total monthly balance of $5,200 for three months. Other applications of blended interest would be when you want to add payments onto your current mortgage.

For that situation, let us consider another example.

For our second example, let's consider an annual mortgage balance of $100,000 at an interest rate of 2.5%. Let's say that your lender offered to increase your mortgage by $20,000 at a 4% interest rate, to provide you with additional funds that you can use for other expenses. To calculate the equivalent blended rate of this offer, we do the following:

blended rate = sum of all the interests / total balance

blended rate = ($100,000 * 2.5% + $20,000 * 4%) / ($100,000 + $20,000)

blended rate = ($100,000 * 0.025 + $20,000 * 0.04) / $120,000

blended rate = ($2,500 + $800)) / $120,000

blended rate = $3,300 / $120,000 = 0.0275 = 2.75%

From the computation above, we can then say that, if you accept the offer by your lender, you need to apply an interest rate of 2.75% to the new total balance of $120,000. Hopefully, the examples above give you an idea about where we can apply blended rates.

How to use our blended rate calculator?

To use our blended rate calculator, all you have to do is input the balances and interest rates of your amortization, loan, debt, or dues for each of your amortizations. However, please always be reminded that the interest rates must be the same frequency as the payment periods. Again, what this means is, if the payment period of a loan is every month, its interest rate must also be for each monthly period.

Initially, you will see two amortizations with default values. Just replace their values, and if you need more amortizations to consider, fill in the next blank slot, and another one will show up. In our blended rate calculator, you can input details of up to ten amortizations. Please also note that all other balances must be of the same payment period as the first ones. You can see the results at the bottom part of the calculator, which will display the total balance for that payment period and the resulting blended rate.

Want to explore our other finance calculators?

This blended rate or blended interest rate calculator is just one of our numerous finance calculators. If you are planning on purchasing a car through a financing agency, you can check out our car loan calculator to help you decide on your purchase.

You might also want to check out our savings calculator to plan out where to best place your money so that it can grow beyond the effects of inflation.

Kenneth Alambra