If the rate of return on your Registered Retirement Savings Plan (RRSP) is expected to be higher than the interest rate on your loan, borrowing to invest could put you ahead. But, if your RRSP rate of return is less than your loan rate, an RRSP loan may not be your best option.
The higher your current tax rate and the lower you expect your rate to be in the future, the more it may make sense to borrow to invest in an RRSP.
If you find it hard to save, borrowing might be a good solution to ensure you make your RRSP contributions.
You will have to repay the loan’s principal and interest even if the value of your investment goes down.
Rates: Estimated rate of return is 6%, borrowing rate is 4% and marginal tax rate is 40%.
No loan. Invest $300 after-tax dollars per month in RRSP.
Borrow $16,933 to make an RRSP contribution.
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