Blended Interest Rate

A blended interest rate is the weighted average rate applied when a borrower has multiple loans or financing components secured by the same property. It reflects the combined cost of borrowing across different interest rates, loan balances, and terms. The calculation typically weights each loan’s interest rate by its proportion of the total debt, producing a single effective rate that represents the borrower’s overall financing cost. Blended rates are commonly encountered in situations involving first and second mortgages, refinances that leave subordinate liens in place, or structured financing arrangements in commercial real estate.
Blended interest rates are particularly useful for evaluating and comparing financing scenarios, especially when restructuring debt or considering additional borrowing. For example, an investor deciding whether to refinance an existing low-rate loan while adding new higher-rate debt may use the blended rate to assess whether the overall cost of capital remains favorable. Although the concept provides a simplified view of borrowing costs, it does not account for differences in loan terms such as amortization periods, fees, or prepayment penalties, all of which may materially affect the true cost of financing.