Extension of Loan Term

[DTH]

Plan provides that participants may only have one outstanding participant plan loan at a time. Principal residence loan terms cannot be longer than 15 years.

A participant currently has a 5-year principal residence loan. Can the participant extend the loan to 10 years?

Thanks.

[E as in ERISA]

The law does not limit participants to one loan at a time. So this is only a plan limit and it depends on the exact language of the document or policy and how it is interpreted.

[Guest cease]

I think the answer to your question is no. The participant cannot extend the loan to 10 years. I have been spending a lot of time recently in 1.72(p)-1 Q&As and I am basing my answer pursuant to Q5 and Q8.

Q5 indicates that a loan used to acquire a dwelling unit as a primary residence will occur within a reasonable period of time. In your example, it would be my opinion that the reasonable period of time occured when the participant applied for the loan originally (as a 5-year loan). It would appear from the example in Q8 that a reasonable period of time is no more than 3 months.

Q8 deals with the concept of mortgage refinancing (which is very popular now) and that the provisions of principal residence loans do not apply in this situation.

I agree with Katherine's comment below that the IRS does not limit a participant to one loan at a time and that the loan procedure defined within the plan document dictates the policy, however, I do not see a circumstance now that would permit extension of the term of the original loan, and if the plan permits more than one loan, a reason why the new loan would meet the requirements of a principal residence loan.

Hope this helps.