Loan Refinancing

[BTH]

A participant takes out a loan in 2001 with the final payment due in 2006. In 2004, he wants to take an additional loan with a 5-year repayment period and include the initial loan as part of the new loan.

Since the new repayment period would extend beyond the due date of the initial loan, as long as the outstanding balance of the old loan plus the total of the new loan do not exceed the 1/2 vested balance/$50,000 limit, is everything fine within the rules/regulations? Any other considerations?

Thanks.

[FundeK]

Since the new repayment period would extend beyond the due date of the initial loan, as long as the outstanding balance of the old loan plus the total of the new loan do not exceed the 1/2 vested balance/$50,000 limit, is everything fine within the rules/regulations?

Yes, as long as the loan policy allows for refinancing.

[E as in ERISA]

Remember that the loan still has to meet the "agreement" requirement of the regulations. Make sure that you will have a paper trail of the participant agreeing to pay the full amount of the refinanced loan, according to its terms (might have a new interest rate, etc.). And make sure that your truth in lending disclosures will be correct. These can be more of an issue on refinancing, especially with "paperless." You're only writing a check for the additional amount, but you need to make sure your paperwork reflects the total amount.