Blended Rate Mortgage Calculator

Blended rate is what you are effectively paying when you hold two loans. 200,000 at 3% plus 50,000 at 7% is not 5%, because the larger low-rate loan dominates. Actual blended rate is 3.80%. This is the figure often used when comparing against a single refinance offer.

A worked example

Two balances of 100,000 each, one at 3% and one at 7%, blend to exactly 5%; with equal balances the blend is the simple average. Tilt the balances to 200,000 and 50,000 and the blend falls to 3.80%: a consolidation offer at 4.5% now undercuts both the 7% loan and the mental 5% average, yet still costs 0.7 points more than the position already held.

What moves the number most

The weights are the sensitivities: a percentage point on either rate moves the blend by exactly that loan's share of the total. At the sample figures, a point on the 200,000 loan shifts the blend by 0.80 points (3.80% to 4.60%) while the same point on the 50,000 loan shifts it by 0.20 (to 4.00%). Balances move the weights themselves: doubling the smaller loan to 100,000 lifts the blend to 4.33% by pulling weight toward the higher rate.

The formula behind this

Weighted average of the two rates by balance. The simple version ignores differing remaining terms; the comparison holds best when both loans have similar terms.

Why this matters

An offer priced between 3.80% and 5% looks acceptable against the 5% shortcut but is more expensive than the position already held. The mental average misprices the debt by 1.2 points at the sample figures.

Why it is weighted, not averaged

A blended rate weights each rate by its balance's share of the total. The blend equals the simple average only when the balances are equal; otherwise it sits nearer the larger balance's rate, because the weight is the balance share.

What the blend does not capture

The main use is comparing a consolidation offer against what is already held, since a rate that looks lower than the highest loan can still be higher than the blend. It assumes both balances are outstanding over the same period, so it drifts as the loans amortise at different speeds. It also ignores fees, term differences, and any rate that is fixed on one loan and variable on the other, each of which can matter more than the fraction of a point the blend reveals.