First and Second Mortgages
This calculator can be used to determine the blended interest rate when a second mortgage is taken out on a home. The calculator requires two sets of inputs from the user, including:
- The total amount borrowed as part of the first mortgage
- The annual rate of interest paid on the first mortgage
- The term of the first mortgage, which is stated in years. The term of the loan is also referred to as the length of the loan
- The amount borrowed, annual interest rate, and term for the second mortgage
The calculator then provides the user with four outputs:
- The monthly payment for the first mortgage
- The monthly payment for the second mortgage
- The monthly payment for the blended mortgage, which is the total of the first and second mortgage payments
- The blended interest rate, which is found by taking the weighted average of the interest rates for each of the two loans
Blended rates
By definition, a blended rate combines the interest rates on two or more loans to calculate the total interest charges on the aggregate loan. For example, if a homeowner were to have a primary mortgage and take out a second one, they may want to understand the blended rate for both loans. While we offer an online tool that can do this calculation for you, determining a blended rate is not complicated. What we are doing here is calculating a weighted average interest rate.
Example calculations
Let’s say a homeowner has two loans on their home, both loans are for 200,000. The first loan is at 5%, while the second loan is at 3%. In this example, since both loans have the same “weight”, we know the blended rate is 4%. The calculation would be as follows:
Blended Rate = (5% x 200,000 + 3% x 200,000) / (200,000 + 200,000) = 4%
In this second example, let’s say the homeowner has two loans, one loan for 200,000 at 5% and a second loan for 20,000 at 4%. In this case, the first loan has a lot more weight than the second loan, so we can expect the blended rate to be closer to 5% than 4%. We can prove that out:
Blended Rate = (5% x 200,000 + 3% x 20,000) / (200,000 + 20,000) = 4.818%
You can use our blended rate calculator do crunch these numbers for you and visualize how blended rates work.
Loan term has no effect on the rate
If you’ve been running through several scenarios with our calculator, you may have noticed the term of the loan has no impact on the blended rate. Looking at the above two example calculations, you’ll notice neither scenario talked about the length of the loan. Our calculator uses the term of the loan to determine the monthly payments for each loan as well as the blended payment. We ask for this information so we can supply information that may also be interested to our users; however, most users are primarily interested in the blended interest rate, which only requires the loan amount and interest rate for each loan.