CARES ACT Loans Delay of Payments

[sdix401k]

I am sure we have all read the bill and many articles.  I wanted outline three scenarios to make sure I am reading the Act correctly in regards to COVID Loans and the delay of payments.

1) We have a new COVID Loan and the participant delays the payments for 1 year.  The max loan period is still 5 years and payments that were supposed to start on 1/1/2021 will start on that date.  Payments that were supposed to start on 4/1/2020  - 12/31/2020 will start on 04/01/2021.  The loan will need to be re-amortized since interest has been accruing and even if payments were doubled the loan would not be paid off within the 5 year period.

2) There is an existing loan in effect.  Participant chooses to delay current payments for 1 year.  Let's say it is a 5 year loan and he is in year 2 of the loan.  Payments from now until the end of the year are delayed for 1 year.  The original loan payments go back into effect on 01/01/2021 and the delayed payments start back up on 04/01/2021.  We are now in year three of the loan and that loan needs to be re-amortized to make sure it does not exceed 5 years.

3) Loan is in 5th year and participant wants to delay payments for 1 year.  This is allowed and the 5 year rule is disregarded. Payment continue in next year and need the loans needs to be paid off within 6 years.

 

Do I have this correct???

[Bird]

I understood that the 5 year period was extended.  Since interest accrues, you are right about reamortizing otherwise it won't be paid off at the end of the extended period.

I don't know about the "even if payments were doubled" part.

[Larry Starr]

1 hour ago, sdix401k said:

I am sure we have all read the bill and many articles.  I wanted outline three scenarios to make sure I am reading the Act correctly in regards to COVID Loans and the delay of payments.

1) We have a new COVID Loan and the participant delays the payments for 1 year.  The max loan period is still 5 years and payments that were supposed to start on 1/1/2021 will start on that date.  Payments that were supposed to start on 4/1/2020  - 12/31/2020 will start on 04/01/2021.  The loan will need to be re-amortized since interest has been accruing and even if payments were doubled the loan would not be paid off within the 5 year period.

2) There is an existing loan in effect.  Participant chooses to delay current payments for 1 year.  Let's say it is a 5 year loan and he is in year 2 of the loan.  Payments from now until the end of the year are delayed for 1 year.  The original loan payments go back into effect on 01/01/2021 and the delayed payments start back up on 04/01/2021.  We are now in year three of the loan and that loan needs to be re-amortized to make sure it does not exceed 5 years.

3) Loan is in 5th year and participant wants to delay payments for 1 year.  This is allowed and the 5 year rule is disregarded. Payment continue in next year and need the loans needs to be paid off within 6 years.

 

Do I have this correct???

Bird is correct;  the plan can extend the term of the loan for up to one year.