Blended Rate


DEFINITION of 'Blended Rate'

1. An interest rate charged on a loan, which is in between a previous rate and the new rate. Blended rates are usually offered through the refinancing of previous loans, and charge a rate that is higher than the old loan's rate but lower than the rate on a new loan.

2. A rate that is calculated for accounting purposes to better understand the debt obligation for several loans with different rates or the revenue from streams of interest income. The blended rate is used to calculate the pooled cost of funds.

BREAKING DOWN 'Blended Rate'

1. Banks use a blended rate to retain customers and increase loan amounts to proven, creditworthy clients. For example, if a customer currently holds a 7% interest, $75,000 mortgage and wishes to refinance, and the current rate is 9%, the bank might offer a blended rate of 8%. The borrower could then decide to refinance for $145,000 with a blended rate of 8%. He or she would still pay 7% on the initial $75,000, but only 8% on the additional $70,000.

2. The blended rate is 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 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 therefore be (50+180)/4000 or 5.75%

  1. Cost Of Funds

    The interest rate paid by financial institutions for the funds ...
  2. Real Interest Rate

    An interest rate that has been adjusted to remove the effects ...
  3. Refinance

    1. When a business or person revises a payment schedule for repaying ...
  4. Coupon Bond

    A debt obligation with coupons attached that represent semiannual ...
  5. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
Related Articles
  1. Credit & Loans

    How Mortgage Refinancing Affects Your Net Worth

    Find out how to determine whether refinancing will put you ahead or even more behind.
  2. Home & Auto

    When (And When Not) To Refinance Your Mortgage

    There are both good and bad reasons to refinance. Learn more about both here.
  3. Investing Basics

    What Investors Should Know About Interest Rates

    Understanding interest rates helps you answer the fundamental question of where to put your money.
  4. Credit & Loans

    Rate Freeze To Cool Mortgage Meltdown

    The U.S. government is offering help to subprime borrowers. Is this a cure or a curse?
  5. Professionals

    Accounting Research Manager: Job Description & Average Salary

    Learn about the average salary of an accounting research manager as well as the necessary skills, experience and education, and licenses to hold this position.
  6. Stock Analysis

    Analyzing Home Depot's Return on Equity (ROE)

    Discover what Home Depot's return on equity (ROE) ratio says about the performance of the company and how it relates to historical averages and industry trends.
  7. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  8. Professionals

    Common Interview Questions for Financial Auditors

    Identify questions commonly asked at financial auditor job interviews, and learn to formulate winning responses that give your candidacy a boost.
  9. Investing

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  10. Professionals

    4 Must Watch Films and Documentaries for Accountants

    Learn how these must-watch movies for accountants teach about the importance of ethics in a world driven by greed and financial power.
  1. When would a corporation want to refinance its debt?

    Favorable market conditions or the strengthening of a company's credit rating may lead to the refinancing of corporate debt. ... Read Full Answer >>
  2. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  3. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  4. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  5. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  6. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
Trading Center