How this instrument works
A blended rate is the single interest rate that would produce the same total interest as two differently priced balances combined, and it is always a weighted average — balance size matters as much as the rate attached to it. Multiply each balance by its own rate, add the two products, then divide by the combined balance; a $200,000 loan and a $50,000 loan never split the difference evenly, because the larger balance pulls the blended figure toward its own rate.
The U.S. Department of Education runs close to this exact arithmetic when a borrower applies to consolidate federal student loans: it weights each loan's rate by its balance, averages them, then rounds up to the nearest eighth of a percentage point to set the new fixed rate. Homeowners do an informal version of the same sum whenever a home equity line sits on top of an existing first mortgage — the blended cost of the two liens together is the figure that actually competes against a cash-out refinance quote, not the rate on either loan read alone.
What the formula leaves out matters as much as what it returns. It says nothing about fees, closing costs, remaining term length, or whether the two debts amortize on the same schedule — a 4% rate with eight years left and a 4% rate with twenty-eight left produce an identical blended figure here despite costing very different amounts of interest before either is paid off. Treat the result as a snapshot of today's carrying cost, not a forecast of what finishing either loan will actually cost.
- Enter the first loan's outstanding balance into Balance 1, $ and its interest rate into Rate 1, %.
- Enter the second loan's balance into Balance 2, $ and its rate into Rate 2, %.
- Read Blended rate, % — the single weighted-average rate that describes carrying both balances together.
- Move either balance up or down to see how strongly the result tilts toward the larger loan.
- Compare the blended figure against a consolidation or refinance quote priced on the combined balance.
Worked example — a $200,000 loan beside a $50,000 loan
Balance 1, $ = 200000 at Rate 1, % = 4, alongside Balance 2, $ = 50000 at Rate 2, % = 7. The numerator is (200000 × 4) + (50000 × 7), which is 800000 + 350000 = 1150000; the denominator is 200000 + 50000 = 250000. Dividing the two gives Blended rate, % = 4.6 — closer to the 4% loan than to the 7% one, because four times as much money sits at the lower rate.
Averaging 4 and 7 the ordinary way gives 5.5, a full 0.9 percentage points above the true blended cost — the exact mistake this instrument exists to catch. A borrower weighing that 4.6% blended figure against a 5% consolidation offer would correctly see the offer as more expensive, whereas a naive 5.5% average would have made that same 5% offer look like a discount it is not.
Questions
Why isn't the blended rate just the average of the two rates?
Because a simple average ignores how much money sits at each rate. Averaging 4% and 7% gives 5.5%, but if the 4% balance is four times the size of the 7% balance, the true weighted cost is 4.6% — the formula multiplies each rate by its own balance before dividing, so the larger loan pulls the result toward itself.
Is this the same weighted average federal student loan consolidation uses?
It is the same shape of calculation. The Department of Education weights each federal loan's rate by its balance, averages them, then rounds the result up to the nearest eighth of a percentage point to set the fixed rate on a consolidation loan. Enter your own balances and rates here to see the unrounded figure before that final rounding step is applied.
Does this tell me whether to consolidate or refinance?
No — it only computes the weighted-average rate you are carrying right now. Deciding whether a consolidation or refinance offer is worth taking means comparing that blended figure against the new rate being offered, and weighing fees, any lost borrower protections, and a possibly longer repayment term, none of which this instrument prices.
Why would I check the blended rate on a mortgage plus a home equity line?
Because a home equity line stacked on a first mortgage means two rates are financing one property, and the figure that competes against a cash-out refinance quote is the combined cost, not either rate alone. A 3.5% first mortgage beside a 9% line can blend well above what either loan looks like in isolation once the line's balance grows relative to the first.
Can I use this for more than two loans?
Not directly — this sheet takes exactly two balances and two rates. For three or more debts, blend the first pair, then treat that result as one balance (the sum of the two) paired with its blended rate, and blend that combined figure against the third loan; repeating the same weighted-average formula one pair at a time reaches the same answer as weighting all of them at once.
What happens if one of the balances is zero?
The blended rate collapses to the other loan's rate exactly, because a zero balance contributes nothing to either the numerator or the combined denominator. Setting Balance 2, $ to 0 returns whatever is entered in Rate 1, % unchanged, no matter what Rate 2, % holds — the second loan simply drops out of the arithmetic.
References
- Federal Student Aid — Direct Consolidation Loans
- Consumer Financial Protection Bureau — Owning a home
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.