Catch-up loans for rrsps aren’t being used as much as they were in the past, but some clients still find them helpful. And both fund companies and banks are offering deals through financial advisors for clients who want to top up their RRSP contributions with a loan.
Many mutual fund and financial services providers offer short-term loans of a year or less, as well as longer-term versions — often up to a decade in duration. The former serves to boost a client’s RRSP contribution for a particular tax year, while the latter can help clients reduce their carry-forward room.
Toronto-based Royal Bank of Canada has three loan offerings with preferred pricing for its clients and those of its subsidiaries, Toronto-based RBC Dominion Securities Inc. and Vancouver-based RBC Phillips Hager & North Investment Counsel Inc. The first option is a variable-rate loan for one to 12 months at prime for up to $50,000. That same amount can be borrowed for 13 to 60 months at a variable rate of prime plus 1.5%. Third, DS offers top-up loans of $25,000-$50,000 for five to 10 years at prime plus 1.5%.
The longer amortization periods are offered to minimize the impact on clients’ monthly cash flows, says Blair Delveaux, manager of financial planning with RBC in Winnipeg.
Loan options are remarkably similar to what was available last year because interest rates are still hovering near historic lows. Delveaux says clients also can use their home lines of credit to make contributions to their RRSPs. “That can be more flexible,” he says, “in terms of setting up a repayment structure.”
Winnipeg-based Investors Group Inc. offers loans of terms as short as three months and as long as 10 years. The shortest offer an interest rate of prime; the rates inch up by 25 or 50 basis points as the term increases.
Daniel Collison, regional director with Investors Group in Markham, Ont., says that if clients are in a position in which they need a catch-up loan, Investors Group consultants will encourage those clients to use a pre-authorized chequing plan to make contributions to their RRSP accounts on a regular basis throughout the year.
“We try to get them on the right stream,” says Collison, “rather than just having them come back year after year and borrowing retroactively. Even if they’re contributing just $50 or $100 a month, that gets them contributing and paying off the loan. Ultimately, they’ll be able to get away from borrowing.”
Loans with terms of less than one year at Toronto-Dominion Bank can be had at prime, while longer terms of up to five years ring in at prime plus 1.5%. Jillian Bryan, vice president and portfolio manager at TD Waterhouse Private Investment Advice in Vancouver, recommends the shortest loan term possible because, she says, clients can’t deduct the interest on loans used for RRSP contributions. IE