Refinancing a loan when only 1 loan at time is permitted

[Guest H. Joseph]

The plan document limit's the number of loans to 1.

The participant currently has a loan amortized over 10 years (primary residence, 8 years left) and wants to take a new loan.

Does Sal Tripoldi's Chapter 7, Section IX, Part C.1.b, 1.b.4)c, (page 7.306, 2009 edition) indicate that we can refinance with unequal payments as long as the interest rates are the same and the original loan does not extend pasted the orginal repayment period, all limits are met, and the new loan is within 5 years?

Similar to Treas. Reg 1.72(p)1 Q20, section b, example 1, iii?

[Guest Sieve]

I think you're correct. Q&A-20(a)(2) seems to allow this process even for the refinancing of home loans.

Some, would say, however, that a 1-loan limit does not permit loans ot be refinanced because there are technically 2 loans outstanding at a point in time, but I disagree with that he analysis. My understanding, too, is that some TPAs will not alloow refinances because their software will not accomodate anything other than level amortization.

[K2retire]

My understanding, too, is that some TPAs will not alloow refinances because their software will not accomodate anything other than level amortization.

Isn't level amortization one of the requirements to avoid a prohibited transaction?

[Guest Sieve]

Yes, but the refinanced loan must be paid over its remaining term (or it can be extended to a 5-yr term from the point of the original loan), and the new loan must be repaid in 5 years. So, if you look at the example in the regs (& the OP), there is a change of payment after the first loan is paid off--i.e., until the first loan is paid off, payments are X + Y (loan 1 + loan 2), and after the first loan is paid off the payments reduce to Y, only (loan 2, only).