Borrowing for RRSPs

If you find you don't have enough cash on hand to make your maximum contribution or would like to take advantage of unused RRSP deduction room from previous years, borrowing may be the answer.

With an Alterna Investment Loan, the amount you'll save on taxes is often more than the interest you'll pay to borrow. To maximize your RRSP benefit, we recommend that you immediately apply your tax refund to the loan to reduce your borrowing costs. You should also try to pay off the loan as early as possible.

See how borrowing over a one-year period can get you a tax refund that is much higher than the cost of the interest you pay:

 

Loan: $3,500
Term: 1 year
Rate: 6%
Marginal tax rate: 41%
Payment: $302
Cost of borrowing: $126.78
Tax refund $1,435
Using borrowed money to finance the purchase of securities involves greater risk than using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of your purchase declines.

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