Blended Rate

Dictionary Says

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.

Investopedia Says

Investopedia explains '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%

comments powered by Disqus
Hot Definitions
  1. Legal Monopoly

    A company that is operating as a monopoly under a government mandate. A legal monopoly offers a specific product or service at a regulated price and can either be independently run and government regulated, or government run and regulated.
  2. Closed-End Fund

    A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
  3. Payday Loan

    A type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash.
  4. Securitization

    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.
  5. Economic Forecasting

    The process of attempting to predict the future condition of the economy. This involves the use of statistical models utilizing variables sometimes called indicators.
  6. Chicago Mercantile Exchange - CME

    The world's second-largest exchange for futures and options on futures and the largest in the U.S. Trading involves mostly futures on interest rates, currency, equities, stock indices and agricultural products.
Trading Center