This is one of the best tools for maximizing retirement savings. Investors can use these loans to top-up their RRSP and use-up some or all of their unused contribution room. This means investors can reduce their taxes immediately by getting a larger tax deduction today. This deduction could result in a larger tax refund that can be applied back to repay the RRSP loan. This will also increase the RRSP growth potential through the power of compounding. This is because the larger the initial investment and the longer it remains invested, the greater the investment potential. These loans are extremely flexible and may be paid back at terms ranging from 1-5 years or longer depending upon the amount of the loan. RRSP loans also offer flexible rates of return that can be fixed or floating and usually offer a 90-day 1st payment deferral options that allows time for tax refunds to reach investors before a payment is due.
While borrowing to invest can be a powerful means to build wealth, the risks involved make it a strategy that is not suitable for everyone. Your financial security advisor and investment representative and your tax advisor can help you determine if borrowing to invest is a strategy that is right for you.
Leveraging magnifies gains or losses. It is important that you understand a leveraged purchase may involve a greater risk than a purchase using cash resources only. To what extent a leveraged purchase involves undue risk is a determination to be made on an individual basis by each investor.