Comments on: How To Calculate Blended Interest Rates

By: don

don — Sun, 13 Sep 2009 06:41:32 +0000

question for you….I bought a truck for 8k…took out a loan for 6.5k at 6%. my payment is 135 a month…I pay 200 each month, but the interest i’m paying is always around the same amount…shouldnt the interest go down as I pay more to the principal?

By: jim

jim — Thu, 20 Nov 2008 23:20:20 +0000

@Sam: Using rough math, if the 8.25% interest is tax deductible and you’re in the 25% bracket, in theory you only pay the other 75% (because you deduct it and your taxes are reduced). 75% of 8.25% is 6.1875%, which is still higher than your 5.25% – so you’ll want to pay the second mortgage down.

By: Sam

Sam — Thu, 20 Nov 2008 22:53:50 +0000

Jim-
Yes. The interest on loan A is tax deductible (part of mortgage) and loan B (car) is not. I did some calculations and it looks like the interest on loan A is only about $50 a month, which is pretty low I guess considering the interest rate….

By: jim

jim — Thu, 20 Nov 2008 22:43:02 +0000

@Sam: Your immediate thought is correct, you want to pay off the higher interest rate loan in most cases. The only exceptions are if the interest is tax deductible, but with a 3% spread, it’s unlikely the 8.25% will have an effective interest rate lower than the 5.25%. Pay off the 8.25% first.

By: Sam

Sam — Thu, 20 Nov 2008 21:49:24 +0000

Jim-
I have a question. I have a loan (loan A) of $7300 at an interest rate of 8.25% and another 16,800 (loan B) at an interest rate of 5.25%. My immediate thought was to pay off loan A, and not B because of the higher interest rate. But then I started thinking and started looking for calculators which would let me do some calculations but couldn’t see anything direct.

Can you help me? I am assuming it will also help others who are in the same situation!

Thanks much!

By: jim

jim — Thu, 13 Nov 2008 18:11:51 +0000

The easiest way would be to use the Calculator's Tag page, it'll list every post I've tagged with Calculator; that should do it for you.

By: Ray`

Ray` — Thu, 13 Nov 2008 16:50:40 +0000

Great stuff Jim. Just wondering if there is a place on your site that has all of your “calculators” in one place? I find them useful now, but would be even more useful for future reference and would like to come back and easily find them.

Thanks!

By: jim

jim — Wed, 12 Nov 2008 21:03:14 +0000

@Jessica: Yep, the calculators asks for APR as inputs and spits out APY. If you put 5% APR into the APR to APY calculator, the APY that it produces is 5.12%.

You scared me for a second!

By: Jessica

Jessica — Wed, 12 Nov 2008 20:26:13 +0000

I might be missing something but I just did a test of the blended bank interest calculator and put in 5% at 3 months and 5% at 9 months and it gave me a blended rate of 5.12%. Is it just an anomaly that the rate comes out different if you put the same percentage in twice or is it an APR vs APY thing?

By: jim

jim — Wed, 12 Nov 2008 19:59:40 +0000

The first scenario is the same as a weighted average (some call it blended), but the second one isn’t because of how the compounding works.

By: Glenn Lasher

Glenn Lasher — Wed, 12 Nov 2008 19:40:11 +0000

It is the same thing as a weighted average. I keep track of a blended rate for all of my combined debts, from the highest-interest store credit card to my wife’s student loan, just as a way to get a sense of where I am.