Can a participant in a plan that only allows one loan do a refinance?

[FundeK]

If a loan policy states "only one loan per participant may be outstanding at a time", can the plan allow the participant to do a refinance to increase $ and extend the loan beyond the 5 year maximum term? (assuming the participant's balance is adequate to cover the new loan). Under the new regs, if a participant is refinancing to extend the terms of the loan beyond the original 5 years, both the replaced loan and the replacement loan must be considered outstanding at the time the new loan is issued. Since they are both considered outstanding at the same time, does this violate the terms of the policy, which states only outstanding loan is allowed per participant? The policy does allow for refinancing. The policy probably should be written to say that multiple loans are allowed for a limited time due to refinancing, but at this point it does not state that.

[Archimage]

IMHO - I think it is okay. I think the writers of the regs were using this logic in regards to how refinancing would work. As long as the plan sponsor treats all participants the same I think you are okay. It would probably be a good idea to have the plan sponsor write down in their administrative policy how they are interpreting this.

Again this is just my opinion and I have no references to the regs.

[FundeK]

Does anyone out there do refinancings? If so, do you allow the participant to do a refinance when the loan policy states only one loan outstanding at a time?

[Guest jmarini]

We do re-finances quite frequently. The purpose of the second loan is to get the employee more money, not to extend the term of the loan past 5 years. So we make the re-fi still pay off within the original 5 year term to avoid the problem of them having two loans at once.