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Timon
Member since: Mar 04

Posts: 297
Location: Greater Toronto Area
Post ID: #PID

Posted on: 15-10-06 16:28:49

I have the following situation:

- I have a balance of 10K in my Line of Credit for which I pay minimum every month.

-I plan on taking a RRSP catchup loan with my bank for 20K for say 5 years.(assuming I have enough room in my RRSP).

-Out of my tax refund, I pay off my Line of Credit.

-I invest the RRSP rather convservatively to ensure that the value does'nt change significantly.

Does this plan make sense to you guys? My idea is to eliminate the debt and have some investments going. What are the precautions I need to take? What kind of investments I should be looking for investing the loan amount?

Any suggestions/thoughts would be greately appreciated.

Thanks

Timon

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"The grass is not, in fact, always greener on the other side of the fence. Fences have nothing to do with it. The grass is greenest where it is watered. When crossing over fences, carry water with you and tend the grass wherever you may be"

Pramod Chopra
Member since: Sep 03

Posts: 1284
Location: Pickering, ON
Post ID: #PID

Posted on: 16-10-06 13:55:56

Quote:
Originally posted by Timon

I have the following situation:

- I have a balance of 10K in my Line of Credit for which I pay minimum every month.

-I plan on taking a RRSP catchup loan with my bank for 20K for say 5 years.(assuming I have enough room in my RRSP).

-Out of my tax refund, I pay off my Line of Credit.

-I invest the RRSP rather conservatively to ensure that the value doesnt change significantly.

Does this plan make sense to you guys? My idea is to eliminate the debt and have some investments going. What are the precautions I need to take? What kind of investments I should be looking for investing the loan amount?

Any suggestions/thoughts would be greatly appreciated.

Thanks

Timon

Timon,

Financial planning is a serious matter and because every body's situation is different, I would suggest you to meet a financial planner and discuss these things and other financial matters in detail. The financial planner would be able to crunch all the numbers and let you know the strategies you should adopt to reduce the debt and increase your net worth. The financial planner would also be able to find out your risk tolerance and time frame to advise you about the investments suitable for you.

However, in order to correctly judge your situation, I would need the rate of interest you are paying on your unsecured line of credit of 10 K and what is the monthly minimum payment thereon. Secondly, what rate of interest you would get on the RRSP loan for a 5 year term. Thirdly, I would need your tax bracket to find out the tax refund you would get on the RRSP and would it fully liquidate the unsecured LOC.

As these things are of confidential nature you can PM me or email me ( you can find my email address from my website the link of which is in the signatures) and I will guide you accordingly.

In the absence of these things we can only guess and the numbers would not reflect your situation correctly. Here is a guesswork with out responsibility on my part.

Let us suppose that you are having this LOC of $10,000 at prime + 2% which means you have to pay app. $70 for the interest though banks would want you to pay $300 or 3% of the remaining balance every month as the minimum payment.

Let us also suppose that you are getting this RRSP loan at prime and for a 5 year term you would have to pay around $390 per month to pay it off completely.

Now let us also suppose that you are in 40% tax bracket, which means that $20,000 in RRSP would give you a refund of around $8000 with which you can pay down the LOC.

This way you could clear the debt and increase your portfolio over time.

-----------------------------------------------------------------

Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada

Timon
Member since: Mar 04

Posts: 297
Location: Greater Toronto Area
Post ID: #PID

Posted on: 16-10-06 21:12:31

Thanks Pramodji for your responses.

The only investment that I see I make out of RRSP would be conservative, given that I need to have the investment to offset the catchup loan eventhough my general risk tolerance and the time horizon is high.The maximum return I could expect out of a conservative portfolio would be in the range of 4-6% which is almost the prime(the interest I will be paying for the loan).

Does it make sense to go with this plan in this case if my investments are probably earning less than prime? I still need to figure out how the fact that I will be paying off my LOC make an impact.

I am sure this analysis would be helpful to others as well.

Thanks for your time once again and waiting for your response.

T

dp_jain
Member since: Jan 04

Posts: 418
Location: Brampton
Post ID: #PID

Posted on: 17-10-06 06:33:37

Hi,

There are secured investments out in the market where one may expect getting over 12% with interest earned working like RRSP and investment is taxed at maturity/withdrawal like capital gain.

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Live and Let Live. Together we can make a difference.

DP JAIN, CPA, CGA, CPA (US), CA(I), LL.B.(I)
416-305-0080
(Loans, Mortgage, Tax, Accounting, Investments)

Timon
Member since: Mar 04

Posts: 297
Location: Greater Toronto Area
Post ID: #PID

Posted on: 17-10-06 08:24:26

dp_jain

This scenario make sense if I could get a return of 12%( I am assuming that this is without condering the tax refund).

What are the products that you suggest?

Thanks once again

T

Pramod Chopra
Member since: Sep 03

Posts: 1284
Location: Pickering, ON
Post ID: #PID

Posted on: 17-10-06 19:38:51

Quote:
Originally posted by dp_jain

Hi,

There are secured investments out in the market where one may expect getting over 12% with interest earned working like RRSP and investment is taxed at maturity/withdrawal like capital gain.

Jain Sahib,

Can you please shed some light on these investments.

Type of investments ?
Security?
Time Frame?
How they work like RRSP?
Do these get you tax reund as well?
How the interest earned treated like Capital gain?

Thanks.

-----------------------------------------------------------------

Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada

OneIsACrowd
Member since: Oct 04

Posts: 95
Location: Toronto, Canada
Post ID: #PID

Posted on: 17-10-06 22:12:27

Quote:
Originally posted by dp_jain
There are secured investments out in the market where one may expect getting over 12% with interest earned working like RRSP and investment is taxed at maturity/withdrawal like capital gain.

I would like to know, too.
What kind of investment pays 12% return AND is secure AND is tax sheltered?

Please enlighten us.

Contributors: Pramod Chopra(7) Timon(5) dp_jain(4) investpro(3) DineshG(2) OneIsACrowd(1) medhora(1) amarbajwa(1) regar(1) pramesh(1)

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