Rate Blend Calculator
Effective Blended Rate
Understanding the Weighted Average Rate Blend
A rate blend is a calculation used to find the weighted average of two different percentage values based on their relative sizes. This is most commonly applied in financial structuring where multiple funding sources with different yields or costs are combined into a single effective metric.
The Blended Rate Formula
To calculate the blended rate manually, you use the following mathematical formula:
Why Use a Rate Blend?
Knowing the effective blend is critical for decision-making. For example, if you are considering consolidating a high-percentage debt with a lower-percentage fund, the blended rate shows you the "real" cost of your total capital. It allows for an "apples-to-apples" comparison against new financing offers.
Realistic Example
Imagine you have two primary sources of capital:
- Source 1: 150,000 at a 4.00% rate
- Source 2: 50,000 at an 8.00% rate
Even though 8.00% sounds high, it only represents 25% of your total 200,000 capital. The calculation would be:
((150,000 * 0.04) + (50,000 * 0.08)) / 200,000 = 0.05 (or 5.00%)
Your Effective Blended Rate is 5.00%, which is much closer to the 4.00% rate because the first amount has a higher "weight" in the total calculation.