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re-financed loan


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Plan only allows for one outstanding participant loan at a time. It does allow for loans to be refinanced / renegotiated.

One of the drawbacks of not allowing concurrent loans is that any participant who refinances can have a shorter repayment period than 5 years. For example, if a participant has been paying 2 years on an existing loan. The new refinanced loan would then be restricted to a 3 year repayment period.

What if the participant's first loan was for a home which the document indicates can have a 20 year repayment period? Suppose that even though he could have had a 20 year repayment period, he only chose 10 years. Now if he refinances, what is the new loan repayment period restriction? Or is there a restriction?

Thanks

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What is the drawback? I'm of the opinion that Plan Loans should be hard to get and you shouldn't be using them as a piggy bank so the additional restrictions are good in my opinion.

That said, I don't believe you can refinance a home purchase loan later on to a term of more than 5 years since the new/refinanced loan is NOT for a home purchase anymore. Though maybe the IRS has some guidance that allows it, if so it is something I missed.

And yes the refinanced loan generally get's you stuck with a shorter repayment period to not violate the 5 year repayment period. The other alternative is to pay off the first loan and take a new one with a new 5 year period, though sometimes that is problematic if the $50,000 limit reduced by highest balance in the last 12 month restriction comes in to play.

edit:typos

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