# Should people borrow to put in RRSP?



## tinypotato (Jul 27, 2010)

Wondering what everyone's thoughts are.

Under what circumstances is it optimal to borrow $ to put into an RSP?

I flip-flop between thinking that it's good to:

- Take advantage of being in a high tax bracket AND
- Low rates currently

Versus...

- I'd have to pay the loan back eventually anyways...

What are people's thoughts?

Better to borrow and contribute vs not contributing at all?
What if there is other debt like mortgage debt?


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## wendi1 (Oct 2, 2013)

When I was younger, and had a mortgage, I used to calculate the amount I could borrow to put into my RRSP in February that would exactly be covered by the amount I would get back in my tax refund.

This is pretty harmless, and cost me $30-$50 without much risk. If it takes you any longer than April to pay it back, you run the risk that you might want the money that you are forced to pay back to deal with something else - job loss, health changes, emergencies of all sorts. As well, the interest on the money you borrow is not deductable.

So, nowadays, I put monthly payments into my RRSP, take my (small) tax refund and put it into my TFSA. No risk whatsoever. And free. 

If you think you will be able to pay, say, $500 a month on a loan, why not put that $500 directly into your RRSP each month, instead? No risk, and free.


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## tinypotato (Jul 27, 2010)

Good suggestions Wendi.

My current situation is, I already made contributions, but am considering borrowing to contribute more (for this past year).

The real dilemma I suppose is. Does it make sense to pay down mortgage and then end up borrowing to put into RSP... I guess it's really a question of leverage at the end of the day...I could alternatively, instead of paying down mortgage, just contribute.....


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## Guban (Jul 5, 2011)

Wendi1's advice seems sensible. Pay yourself to your RRSP going forward rather than reach back, and paying (non deductible) interest in the loan.

The mortgage vs RRSP debate is a question of leverage. How comfortable are you with debt? If you are posting the question about borrowing for your RRSP, then I suppose, pretty comfortable. Many people are less risk adverse, and would want to knock down the mortgage.


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## Ponderling (Mar 1, 2013)

The bigger yuestion is then bigger picture - do you think the market is likley to give a better return than the return of discharging the mortgage for the duration of your mortage repayment.

Read you morgage document carefully. Most allow extra repayment of at least 15% of value every year, but only once a year. I know rates are currently low, but early repayment can offer you years off of your mortgage, and then you can re-deploy former mortgage funds to other investments.


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