Enter the weighted-average accumulated expenditures up to the principal balance of specific borrowing, the interest rate on the specific borrowing, the weighted-average accumulated expenditures in excess of specific borrowing, and the weighted-average interest rate to determine the capitalized interest.

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## Capitalized Interest Formula

The following formula is used to calculate a capitalized interest.

CI = WAAE * IRB + WAAEe * WAIR

- Where CI is the capitalized interest ($)
- WAAE is the weighted-average accumulated expenditures up to the principal of specific borrowing ($)
- IRB is the interest rate on the specific borrowing (%)
- WAAEe is the weighted-average accumulated expenditures in excess of the borrowing ($)
- WAIR is the weighted-average interest rate (%)

## Capitalized Interest Definition

**What is capitalized interest? **A capitalized interest is an amount of unpaid interest that get’s added to a loan. In other words, if loan interest is not paid on time, a lender may capitalize that interest and add it to the principal.

## Example

How to calculate capitalized interest?

**First, determine the weighted-average accumulated expenditures up to the principal.**For this example, this is $20,000.00.

**Next, determine the interest rate of the borrowing.**For this problem, the borrowing interest rate is 5%.

**Next, determine the accumulated expenditures in excess of the principal.**In this case, the excess expenditures is $10,000.00

**Next, determine the weighted average interest rate.**The average interest rate is 4.5%.

**Finally, calculate the capitalized interest.**Using the formula, the capitalized interest is found to be: 20,000*.05 + 10,000*.045 = $1,450.00.