What is the 'Blended Rate'

The blended rate is 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%

RELATED TERMS
  1. Call Loan

    A loan provided to a brokerage firm and used to finance margin ...
  2. Refinance

    1. When a business or person revises a payment schedule for repaying ...
  3. Interest Rate Ceiling

    The maximum interest rate that a financial institution can charge ...
  4. Blend Fund

    A category of equity mutual funds with portfolios that are made ...
  5. Loan

    The act of giving money, property or other material goods to ...
  6. Call Loan Rate

    The short term interest rate charged by banks on loans extended ...
Related Articles
  1. Personal Finance

    How Banks Set Interest Rates on Your Loans

    Many factors go into how banks set interest rates for loans. Use this information to negotiate the best possible rate when you're borrowing.
  2. Personal Finance

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  3. Managing Wealth

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
  4. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  5. Personal Finance

    Student Loan Refinancing: The Pros and Cons

    To refinance your student loan or not? Here are the top pros and cons to consider.
  6. Personal Finance

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  7. Personal Finance

    Lending From A Loan Officer's Perspective

    Learn how a loan officer thinks, so that you can get the best and safest loan.
  8. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  9. Managing Wealth

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
RELATED FAQS
  1. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >>
  2. Federal student loan rates: who sets them, why they vary

    Federal student loan rates are set by Congress, not by banks. Learn more about who gets what rate, and how often they get ... Read Answer >>
  3. What is the difference between a fixed annual percentage rate (APR) and a variable ...

    Fixed ARP and variable APR loans operate differently but serve the same purpose: to collect interest from a borrower so the ... Read Answer >>
Hot Definitions
  1. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  2. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  3. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  4. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  5. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  6. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
Trading Center