how blended rates work
a blended rate is used by lenders to encourage borrowers to refinance existing low interest loans and also used to calculate the pooled cost of funds 1 these rates also represent a weighted average interest rate on corporate debt the resulting rate is considered the aggregate interest rate on corporate debt blended rates also apply to individual borrowers who refinance a personal loan or mortgage there are several free online calculators available for consumers to compute their blended average interest rate after a refinance examples of blended ratesblended rates can apply to refinanced corporate debt or to personal loans taken out by individuals calculating the blended rate involves taking the weighted average of the interest rates on the loans some companies have more than one type of corporate debt for example if a company has 50 000 in debt at a 5 interest rate and 50 000 in debt at a 10 interest rate the total blended rate would be calculated as the blended rate is also used in cost of funds accounting to quantify liabilities or investment income on a balance sheet for example if a company had two loans one for 1 000 at 5 and the other for 3 000 at 6 and it paid the interest off every month the 1 000 loan would charge 50 after one year and the 3 000 loan would charge 180 the blended rate would thus be as another hypothetical example suppose company a announced 2q 2020 results with a note in the earnings report on the balance sheet section that outlined the company s blended rate on its 3 5 billion debt its blended interest rate for the quarter was 3 76 banks use a blended rate to retain customers and increase loan amounts to proven creditworthy clients for example if a customer currently holds a 75 000 mortgage with a 7 interest rate and wishes to refinance when the current rate is 9 the bank might offer a blended rate of 8 the borrower could then decide to refinance for 150 000 with a blended rate of 8 