CARES Act Loan Refinance

[Madison71]

Good Morning!

I received question about a loan that was suspended under the CARES Act by a qualified individual.  The loan was reamortized in January 2021 and one year was tacked on to their original final repayment date.  Lets say it was suspended upon initiation of the new loan with a 60 month term and once reamortized it was to be repaid over 72 months.  Participant made three monthly payments since January 2021 and has 69 months left.  He is looking to refinance the loan which is permitted under the plan.  The new replacement loan will be within the 50%/50,000 loan limit and HOLB.  Question - do you think they can refinance the loan (replacement loan with a new loan amount) over the 69 remaining months or are they subject to no more than 60 months on a non-principal residence loan because it is technically a new loan.  I keep going back and forth on it.  I would greatly appreciate any thoughts.

[C. B. Zeller]

I think that as long as the amount added to the loan will be fully repaid within 60 months, it is ok. The amount outstanding from the original loan as of the refinance date could be repaid as late as 69 months from the refinance date.

[Madison71]

Thank you C.B. Zeller - I think this makes sense.  I am hoping you can confirm my understanding based on the following (numbers rounded to make easier).

Participant with over $100,000 vested account balance takes an original 5 year loan for $31,000 which is suspended under CARES Act. When re-amortized (now over 72 months with 69 payments left), the total repayment is $500 per month.  Participant wants to borrow additional money totaling $20,000 which can only be done in the plan through refinancing the loan as 2nd loans are not permitted.  The $20,000 new loan amount over 60 months is $400 per month.  Participant's new repayment amount would be $900 per month over the next 60 months and $500 the final 9 months?  HOLB would not a factor (only balance at refinance) because the replacement loan is a shorter term than the original.  Any issue with levelized payment? 

Am I understanding this correctly? 

Thank you!

[C. B. Zeller]

I think you have a problem with the refinanced amount plus the highest outstanding balance in the last year being greater than $50,000. The highest outstanding balance in the last year was probably on the day before the first repayment was made in 2021, so take $50,000, subtract that amount, and the difference should be the maximum they can add by refinancing.

The loan payments do have to be level throughout the term of the loan, so for all remaining 69 months. If the new payment is at least equal to the amount that would be needed to amortize the additional loan amount over 60 months on its own, then you should be fine. For example, it would be a problem if the outstanding balance on the original loan was $1,000, and they wanted to add $40,000 by refinancing. The amount that would amortize $41,000 over 69 months would not be enough to amortize $40,000 over 60 months.

[Madison71]

Great - thanks for your insights!

[thepensionmaven]

Does anyone know of a COVID-19 re-amortization schedule that someone has created in Excel?