When Not to Borrow If your shortfall is due to a lower income, a loan may not be a good idea. Take someone who leaves a full-time job to work part time at home. Her new, lower income shifts her from the 50 per cent tax bracket to around the 30 per cent level. Typically, RRSP loans have to be paid back within a year. Even if the financial institution allows you to take longer, don't, because the interest charges will eat up more of your gains.
Loans are usually available at prime, or prime plus one per cent.
In considering a catch-up loan, it's important to weigh the time factor. A five-year repayment schedule, for example, may not make much sense if you're only seven or eight years from retirement. Because you don't know for certain what kind of return you'll get on your investments. And if your portfolio's performance lags the interest costs of your loan, you wind up the long-term loser. Consider why you need the loan in the first place.