Investing - RRSP Lines of Credit - Canada

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RE: RRSP Lines of Credit

Postby pogorelichfan » Tue Jan 26, 2010 10:43:10 PM

I've now finalized the loan and here's what I've learned - some of which might be interesting to people.

- The loan person explained that RRSP loans/lines of credit are 'easier' to get during the rrsp season. This shows how silly lending is. Just one example, you'll be surprised how easy 'high' end credit cards are to get when they first come out - banks don't want a product that nobody can qualify for. Case in point - when RBC introduced its new Infinite Visa, the minimum limit was 10K - I checked the website recently and its now 5K - obviously they figured too many of us Canadians make too little money to qualify!

- Anyway, back to my issue. So the loan is easier to get during rrsp season. The loan interest rate is less if you borrow/invest in the same institution.

- Even if one's RRSP can't be used as collateral, your investment is treated as an asset, which offsets your liabilities and helps you qualify.

In the end, it seems that part of everything is luck, the other part is a bank's need to lend.
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RE: RRSP Lines of Credit

Postby Millie P » Mon Jan 18, 2010 01:44:41 AM

"To make it easy, I'm guessing that you would be securing the line of credit using the RSP..."

Not officially. If you were then you would have to count the value of the loan as income. You can never use an RRSP as security in a loan without major tax issues.

Unofficially you sort of are. The funds transfer from one part of the bank to another but they are still there should you default. RRSP Catch Up loans have fast repayment of at least a good portion of the loan so the bank isn't really taking much of a risk.

While I'm not familiar with an RRSP Line of Credit it can't be secured by the RRSP and a line of credit would imply complete flexibility in payment including the ability to return to the well for more borrowing. This increases risk since depending on how you manage your RRSP the funds might no longer be there. As such the most likely scenario is that a RRSP Line of Credit is a normal credit product cleverly marketed as a RRSP tool. My guess is that it would have the exact same credit requirements of a normal credit line. It might offer something like 0% for the first two months to allow you to get your return and pay it down but other than that it is just a line of credit.

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RE: RRSP Lines of Credit

Postby pogorelichfan » Sun Jan 17, 2010 08:05:54 PM

Thanks for your reply. Actually, I was looking at the Scotia RRSP Catch Up of credit.

My question was more to do with approvals - some say lines of credit all have the same risk procedures, but one would assume that because this line of credit is to invest in rrsps, it would seem the criteria for lending would be easier.

RRSP loans seem easy enough to get, I'm just wondering if an RRSP line of credit is similarly scored? Does anyone have any idea what the minimum credit score (beacon score at equifax) is needed for such an item?
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RE: RRSP Lines of Credit

Postby montyloree » Sun Jan 17, 2010 06:55:16 PM

Interesting question..
To make it easy, I'm guessing that you would be securing the line of credit using the RSP...

I'm not sure... I did a quick search for RRSP Lines of Credit and found the following info from TD CanadaTrust Bank.
http://www.tdcanadatrust.com/lending/rsp.jsp

According to this page they've got 3 options
1) TD Canada Trust On-the-Spot RSP Loan
2) TD Canada Trust CarryForward RSP Loan
3) TD Canada Trust Line of Credit

According to the TD CanadaTrust website
Why using a loan or line of credit to maximize your RSP contribution makes sense
(Consult with your financial advisor)

* Over the long term, the benefits of deferring taxes and earning compound interest can far outweigh the interest cost of using a loan or line of credit to contribute to your RSP.
* You can apply your tax refund against the loan or line of credit to pay down a large portion of it and substantially reduce your interest costs and payments.
* To help you better understand why investing in an RSP makes good financial sense, we have provided two excellent charts with examples and valuable information:

Catching up for missed RSP contributions makes sense
Maximizing your RSP contribution every year pays off
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RRSP Lines of Credit

Postby pogorelichfan » Sun Jan 17, 2010 06:11:47 PM

Hello everyone,

I've been using rrsp loans for years, which are renewable without a hard credit check after the first year - but I don't find them very flexible in terms of repayment.

How difficult are rrsp lines of credit to obtain? I'm assuming much easier than other non-investment items?
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Joined: Sun Dec 23, 2007 10:19:30 AM
Province: BC


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