Guest darrensoup Posted November 28, 2005 Posted November 28, 2005 I have a participant who is making extra loan repayments. As an example the amortization calls for payments of $60.00 and he is having payments deducted in the amount of $100.00. If he were to make 4 payments, totaling $400.00 would I then take the balance of the loan per the amortization at 4 payments and reduce the balance by the difference (400-240). If I do this all the extra is principal. Is this the correct method of handling excess loan repayments?
E as in ERISA Posted November 28, 2005 Posted November 28, 2005 If he pays more principal, then less interest will accrue on the loan. So it would potentially need to be re-amortized. This is why it's a bad idea to do this if your recordkeeping system doesn't perform amortization calculations.
RTK Posted November 28, 2005 Posted November 28, 2005 You may want to check plan loan terms and loan documents to see if they address extra payments. Mine simply prohibit partial prepayments to avoid this issue. Downside then is that acceptance of extra payments would the violate plan terms.
Kirk Maldonado Posted November 28, 2005 Posted November 28, 2005 E as in ERISA: Do most recordkeeping systems include a feature that allow you to re-amortize the loan if the participant makes a partial prepayment? Kirk Maldonado
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