simple participant loan question

[Brenda Wren]

Can a participant refinance the terms of his participant loan simply to reduce the interest rate? I think I understand that refinanced loans, to the extent they are maxed out at $50,000 or 50% of the vested balance, must maintain the same maturity date. But ASPA ASAP 02-23 dated 12/6/02 seems to indicate that you cannot change the interest rate of the original loan. If this is correct, is there any workaround, i.e. pay off the first loan then get a new loan?

[ccassetty]

I went back and read the aforementioned ASPA ASAP and it indeed does say that you can't refinance to a lower interest rate. I could be missing something but Q & A 20, example 2 in the final regs addresses utilizing a lower interest rate and I don't see anything there that would prohibit that as long as the loan meets all of the other requirements. The example there even shows the loan payments being reduced to reflect the lower interest rate.

Could someone please help us out and point us to the missing piece of this puzzle?

Thanks!

[Guest RC]

With our 401(k) loans, the plan participant can refinance the loan to take advantage of a lower interest rate. The maturity date must remain the same.

[Appleby]

For a refinanced loan, the replacement loan's maturity date can be later than the repayment date for the replaced loan

[maverick]

RC:

Not that it has anything to do with this thread, but do you

charge a fee to process a loan refinancing?

Running off a new amort, preparing a new note, changing the recordkeeping system, etc. must be worth something.

Thanks.

[Guest RC]

maverick

Yes. Our group benefits trust charges a refinance fee, but it is less than the original loan processing fee.

[Appleby]

We do-

[Kirk Maldonado]

Appleby:

Do you take the position that the last of the refinanced loan can be more than five years after the date of the original loan?