FAQ 806: DV -- Loans: Combining existing loan with a new loan


We have a participant who just borrowed an additional amount of money from both deferral and match. He currently has an old loan which has not been paid off which has balances in both deferral and match. How do we combine this into one loan with one payment?


In essence, you are going to pay off the existing loan and create a new one for the combined amount.

First, determine exactly where they are at on their amortization schedule based on the most recent payment, or the whenever the last payment for the existing loan will be made. Basically, you are determining the amount of the outstanding principal. Determine these exact amounts by source based on the Summary Statement with activity pages. As well, these amounts should be consistent with the amounts displayed in DVINQUIR. Then I would run some sample amortization schedules of the new total loan amount (existing principal and the additional amount borrowed) just to define the terms of the new loan (e.g. payment amount).

Based on the outstanding balance, determine the additional amount to be borrowed and create a new loan as you normally do - but for only the additional principal amount. Submit the sell trades and the disbursement file as usual to disburse the additional loan amount.

Now you need to pay the existing loan off. You can do this by creating loan principal payment transactions (type 7s) for each source in the amount of the outstanding balance (as determined in the paragraph above)..

The last thing to do is to adjust the new loan you just created to reflect the total principal amount rather than just the additional amount. In the Loan Values screen for each source, adjust the Original Loan Balance field to reflect the new combined total loan amount (by source). Also adjust the new Scheduled Payment amounts by source. Then, access the participant's transaction record and similarly adjust the Amounts (again by source) of the Loan Transfer In transaction (type 28). Do not adjust the type 19 transactions.

Lastly, run an actual amortization schedule for the new loan to be sure it's what you expected.