Proper Interest rate for loan after a LOA

[R. Butler]

Participant takes out a loan @ 5.75% interest. Participant then takes a bona fide Leave of Absence. During the LOA, the Plan's loan document is amended. Participant returns to work, loan is remortized. If this was a new loan interest would 6.25%. Recordkeeper reamortizes at 6.25%. Shouldn't the interest rate still be 5.75%? We don't have a new loan, just a resumption of the old one. Document is silent on this issue.

Thanks for any guidance.

[MGB]

Why are you even thinking about reamortizing? Were the payments suspended? What authority allowed the suspension? Shouldn't this have been a continued payment all along?

[R. Butler]

Final Loan Regs Q&A 9, allows you to suspend loan repayments when the particiapnt is on a bona fide leave of absence. Just because there is a suspension doesn't change the 5 year repayment requirement. We generally recommend reamortizing to avoid a baloon payment at the end.

We doing pretty much what the example in Q&A (9)© sets forth.

[QDROphile]

The loan is a contract. Unless the contract terms anticipate it and allow for it, the contract cannot be changed unilaterally. I think you are approaching the issue correctly. It is the same loan. The LOA suspension simply requires some math to get it back on track, based on the orginal interest rate and terms.