# Formula for recalculation of a bad loan, i.e. where payments were missed?

I need to know if exists any formula to calculate interest rate, principal interest, total amount to be paid, in the case of a bad loan.

Ex: In a bank exists a 20 year home - loan. The client was very correct for the first 5 years. He did not paid a cent for 2 years. Now he want to continue to pay. How is calculated the new interest for this loan?

I'm a software developer, so excuse me for the non professional language.

If this questions is asked before, can you refer me to the previous questions.

• There is no difference in the interest calculation formula for a normal loan or a bad loan. Depending on Bank to Bank / Country to Country and also the type of loan, the Principal outstanding is treated differently. For example Principal outstanding can include the previous unpaid interest [this is called capitalization of interest], or the unpaid interest can be kept separately. – Dheer Apr 4 '12 at 12:43
• To add to Dheer's comment, the interest calculation in case of non-payment will, or should have been, spelled out in the loan agreement, and that is what will govern (subject to various laws). Many loan agreements also call for penalties for late payment or non-payment which also may or may not be capitalized (i.e., accrue interest from the date they are charged). Credit-card agreements often spell out an increase in the interest rate if certain conditions are not fulfilled, etc. So, read the loan document; what we tell you is not particularly relevant as an answer to your question. – Dilip Sarwate Apr 4 '12 at 14:15

There's not quite enough to answer the question in full.

For the two years of non-payment, were there any penalties, or just accrued interest? If no penalties, this is a 3 step time-value-of-money calculation.

First, take the terms of the loan and figure out the balance after 5 years. Second, for two years, increase the balance by the monthly interest rate. Last, calculate a new payment with a 13 year duration.

Excel or any business calculator can handle this.

It sounds like there are no provisions in the loan document for how to proceed in this case. I would view this as creating a brand new loan.

The amount owed is going to be (Principal remaining + interest from 2 years + penalties). If you created a new loan for 13 years, that would not be how I would expect a lender to behave.

I would expect most repayment plans to be something like make double payments until you are caught up or pay an extra \$1000 per month until caught up and then resume normal payments.