A blended rate calculator shows the single interest rate your whole capital stack works out to when a deal uses more than one loan. Enter each loan's amount, rate, and amortization below to get the weighted average rate, the combined monthly payment, and what the extra debt does to your debt service coverage ratio.
Blended rate calculator
Example defaults, not a quote. Set any loan amount to 0 to drop it from the stack, so you can model 2, 3, or 4 loans.
Total debt: $0 (0% of price) and equity of $0
Weighted average interest rate: 0%
Blended monthly payment: $0 ($0 per year)
Blended loan constant (annual payment divided by total debt): 0%
DSCR on loan 1 alone: n/a. DSCR on the full stack: n/a
| Layer | Amount | Rate | Monthly payment | Share of debt |
|---|
Capital stack (share of purchase price)
Monthly payment by layer
What a blended rate is
Most commercial deals for newer investors aren't financed with one loan. You might have a bank first mortgage, a seller carry back note for part of the down payment, and maybe a small piece of mezzanine debt or a second lien to close the gap. Each piece has its own rate and its own payment.
The blended rate is the weighted average of those rates, weighted by how much you borrowed on each one. A big loan at a low rate pulls the average down. A small loan at a high rate pulls it up, but only a little, because it's a small share of the debt.
That's why an 11% mezzanine piece doesn't wreck a deal by itself. If it's 5% of your total debt, it moves your blended rate by a fraction of a point. What it can wreck is your cash flow, which is why the calculator shows the payment and the DSCR next to the rate.
The blended rate formula
Multiply each loan amount by its rate, add those up, and divide by the total debt.
Blended rate = (Loan 1 x Rate 1 + Loan 2 x Rate 2 + ...) / Total debt
The rate is only half the story. Two loans with the same rate can have very different payments if one amortizes over 25 years and the other over 10, or if one is interest only. So the calculator also figures each payment with a standard amortizing formula (or interest only when you enter 0 years), adds them up, and shows the blended loan constant. The loan constant is annual debt service divided by total debt. It tells you what the stack really costs you each year in cash, principal included.
How to use the calculator
- Enter the price and NOI. Use the purchase price (or appraised value on a refinance) and the net operating income you're underwriting, not the seller's best case.
- Enter each loan. Amount, interest rate, and amortization in years. Use 0 years for an interest only loan.
- Drop the layers you don't need. Set a loan amount to 0 and it disappears from the stack, the payment, and the chart. That's how you compare a two loan structure to a three or four loan structure.
- Read the two DSCR numbers. The first is coverage on the senior loan alone, which is roughly how a bank sees its own loan. The second is coverage on everything, which is what your bank account sees every month.
- Check the capital stack bar. It shows each loan and your equity as a share of the price, so you can see how much of the deal is really yours.
Worked example
These are example numbers (the calculator's defaults), not a quote or a market rate.
A $1,250,000 building with $105,000 of NOI, financed with four pieces:
- Loan 1, bank first mortgage: $700,000 at 7.00%, 25 year amortization. Payment about $4,947 per month.
- Loan 2, second lien: $100,000 at 8.50%, 20 year amortization. Payment about $868 per month.
- Loan 3, seller carry back: $150,000 at 6.00%, 20 year amortization. Payment about $1,075 per month.
- Loan 4, mezzanine: $50,000 at 11.00%, interest only. Payment about $458 per month.
Total debt is $1,000,000, which is 80% of the price, so the buyer brings $250,000 of equity. The weighted rate math in one line: ($700,000 x 7.00% + $100,000 x 8.50% + $150,000 x 6.00% + $50,000 x 11.00%) / $1,000,000 = $72,000 / $1,000,000 = 7.20%.
The blended payment is about $7,348 per month, or about $88,179 per year. That's a blended loan constant of about 8.82%, well above the 7.20% rate, because three of the four loans are paying down principal.
Now the part that matters. On the bank loan alone, DSCR is $105,000 / $59,369 = about 1.77x. On the full stack it's $105,000 / $88,179 = about 1.19x. The bank looked at a very comfortable deal. You own a thin one. If your lender's minimum coverage applies to all of the debt (many do), this structure may not get approved as drawn. Try stretching the seller note to 25 years or making it interest only for the first couple of years and watch the full stack DSCR move.
How lenders look at a blended stack
Banks care about their own loan first, but most will also look at total debt. Before you put a second lien, seller note, or mezzanine piece in a letter of intent, ask your lender three questions:
- Do you allow subordinate financing on this loan, and does it need a subordination or intercreditor agreement?
- Is your minimum DSCR tested on your loan only, or on combined debt service?
- Is there a cap on combined loan to value?
The answers change which structure works. I'd rather find out in the first call than after the appraisal is ordered. If you want the details on how a second position loan compares to mezzanine money, read mezzanine financing vs a second lien loan. For the coverage side, the DSCR calculator walks through what lenders want to see.
Mistakes to avoid
- Judging the deal by the blended rate alone. A low blended rate with short amortization can still choke cash flow. Watch the payment and the loan constant.
- Forgetting the balloons. Seller notes and mezzanine pieces often come due before the bank loan. Each one needs a payoff plan.
- Ignoring fees. Origination fees, exit fees, and guaranty fees raise your real cost. This calculator uses the stated rate only.
- Stacking to zero equity. More layers means less room for a vacancy or a rate reset. I've seen buyers stack their way into a deal they couldn't afford to own.
Government guaranteed programs add their own structure, too. An SBA 504, for example, pairs a bank loan with a second loan through a development company, so it's a natural fit for this calculator. The basics are in SBA loans for commercial real estate.
Frequently asked questions
How do you calculate a blended interest rate?
Multiply each loan balance by its interest rate, add the results, and divide by the total of all the loan balances. The result is the weighted average rate across the whole stack.
Is the blended rate the same as the blended payment?
No. The blended rate is the weighted average interest rate. The blended payment is the sum of every loan's payment, which also depends on amortization and whether any loan is interest only.
What is a blended loan constant?
It is total annual debt service divided by total debt. It shows the yearly cash cost of the stack, principal and interest together, as a percentage of what you borrowed.
Does a lender count a seller carry back in DSCR?
Many lenders test coverage on combined debt service when there is subordinate financing, so the seller note payment counts. Rules vary, so ask your lender before you write the structure into an offer.
Can I use this for an SBA 504 loan?
Yes. Enter the bank first mortgage as loan 1 and the second loan as loan 2 with their rates and amortization. Fees are not included, so add them to your own analysis.
Putting together a capital stack for your first or next commercial deal? We work through deal structure and financing every week in the CRE Central Accelerator.
Learn About the Accelerator