Refinancing loan for primary residence

[Brian Gallagher]

A person took a loan for 5 years for a primary residence. Can he refinance it for an add'l 15 yrs? (Plan allows for 20 yr mortgage loans)

[Brian Gallagher]

...

[chris]

Don't know that refinancing would meet the Sec. 72 requirements. See the discussion at

http://benefitslink.com/boards/index.php?showtopic=25857

[Brian Gallagher]

Unfortunately, the discussion is about what exacty "acquisition" is. The person has already bought the house with the loan.

If he had taken a regular 3 yr loan, he would be able to refinance it under the new regs to 5 yrs. However, since this is for the "acquisition", can the loan be refi'd for longer than the 5 yrs?

I'm quite comfortable that the fact pattern qualifies under 72, but can it be done after the fact, so to speak?

[chris]

From Q/A-20 of the Regs:

(2) Loans that repay a prior loan and

have a later repayment date. For purposes

of section 72(p)(2) and this section (including

the amount limitations of section

72(p)(2)(A)), if a loan that satisfies section

72(p)(2) is replaced by a loan (a replacement

loan) and the term of the

replacement loan ends after the latest permissible

term of the loan it replaces (the replaced

loan), then the replacement loan and

the replaced loan are both treated as outstanding

on the date of the transaction. For

purposes of the preceding sentence, the latest

permissible term of the replaced loan is

the latest date permitted under section

72(p)(2)© (i.e., five years from the original

date of the replaced loan, assuming that

the replaced loan does not qualify for the

exception at section 72(p)(2)(B)(ii) for principal

residence plan loans and that no additional

period of suspension applied to the

replaced loan under Q&A–9 (b) of this section).

I guess it depends on how you interpret the underlined text above. One interpretation could be that the "latest permissible term" of the replaced loan, ie, the 5 yr loan would actually be 20 yrs. b/c that's what the plan allows for MTG loans (which is via the exception at section 72(p)(2)(B)(ii)). Query why the participant didn't get a 20 yr. MTG loan from the plan in the first place.