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## How Much Do They Owe Now?

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**THE SCENARIO**
A friend contacted me this week for help figuring out a note he's considering buying. The note's details:
30-year fully amortizing loan, $85,000 borrowed, 9.75% interest rate.
The borrower paid for 4 years, then stopped paying for 8 years.
**The question:** If the amount owed increases during the non-payment period with compounding 9.5% interest and accrues no late fees or other non-interest charges, how much does the borrower owe at the end of the total 12-year period?

**THE SOLUTION**
This is a multi-step problem.
**Step 1: Figure out the payment**
N: 360 (The loan is a 30-year loan)
I/YR: 9.75 (The loan's interest rate is 9.75%)
PV: 85,000 (The borrower borrowed $85,000)
PMT: (This is what I'm trying to find)
FV: 0 (The loan amortizes fully)
**Step 2: Figure out the amount owed after paying for 4 years**
N: 48 (The borrower paid for 4 years, which is 4 x 12 = 48 months)
I/YR: 9.75 (The loan's interest rate is 9.75%)
PV: 85,000 (The borrower borrowed $85,000)
PMT: -730.28 (The loan payment is $730.28)
FV: (This is what I'm trying to find)
**Step 3: Figure out the amount owed after not making payments for 8 years**
N: 96 (The borrower didn't make payments for 8 years, which is 8 x 12 = 96 months)
I/YR: 9.75 (The loan's interest rate is 9.75%)
PV: 82,683.39 (When they stopped paying, the borrower still owed $82,683.39)
PMT: 0 (The borrower has not been making any payments)
FV: (This is what I'm trying to find)
*his* investment is adequately protected by the value of the collateral.

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- Figure out the payment on the loan.
- Figure out how much the borrower owed after making payments for 4 years.
- Figure out how much the borrower owes after not making payments for 8 following years.

The loan payment is **$730.28** per month.

The unpaid balance after 4 years of making payments was **$82,683.39**.

After not paying for 8 years, the unpaid balance on the loan has grown to **$179,803.94**.

What do you think? Should my friend consider this note further? Or should he throw this one back and look for a different note? Why? Let us know in the comments!