RRSP Loan Calculator

Find out if it makes financial sense to take out an RRSP loan with our RRSP Loan Calculator. Play with the details like your expected return, the interest rate on your loan, and your current tax rate to see if borrowing to invest in your RRSP makes sense for you.

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Table of Contents

    What is a RRSP Loan Calculator?

    An RRSP Loan Calculator is used to help users determine whether they should be taking out a loan to contribute to their RRSP. As a tax-advantaged account, RRSP contributions are made using pre-tax income. This means that contributing more to your RRSPs will result in less income tax paid in the present day, as well as gains in the form of returns from investments. The Hardbacon RRSP Loan Calculator allows users to compare the costs and benefits of borrowing money for RRSP contributions and help make informed decisions.

    How to use the Hardbacon RRSP Loan Calculator?

    The first step to using the Hardbacon RRSP Loan Calculator is to enter information on your RRSP. Information such as your RRSP contribution room and expected rate of return are used to calculate the benefits of contributions over time.

    The second step is to enter information on the terms of your loan. You’ll notice that the loan amount, duration, and payments are all interrelated, and changing one of these inputs will in turn change the others. 

    For example, when increasing the loan duration, you will notice a corresponding increase in loan amount. This is because a longer loan will result in more interest being paid, increasing the total amount owed.

    If you increase the loan amount, you’ll notice the payments increase. Assuming the interest rate and loan duration remain the same, a larger loan would result in higher monthly payments.

    Of course, changing the interest rate will also affect payments, as higher interest rates will result in a higher total loan amount. 

    Experimenting with the inputs can help build an understanding of these relationships. Overall, the calculator will use the information provided to determine whether taking out a loan makes sense given your current situation.

    Finally, information on your income tax can be inputted. Individuals who choose to take out RRSP loans should decide how much of their tax return will be used to pay back part of the loan right away. Doing so reduces the real duration of the loan, as you will instantly be paying off some of that debt.

    Understanding the Results of the RRSP Loan Calculator

    Once the information has been inputted, the Hardbacon RRSP Loan Calculator provides information on your RRSP account’s expected future value versus the expected payments for your loans. This information will show users how much they stand to earn by taking out an RRSP loan versus how much they will owe in monthly payments.

    Of course, the numbers should be considered estimates, as assumptions are made regarding the number of years until retirement as well as the expected rate of return on your investments. In addition, interest rates on the loan may change depending on the terms of your loan.

    Graphically, the calculator shows that as time goes on, your loan amount is reduced to zero, while your RRSP account continues to grow until you reach the age of retirement. Information on the loan repayment terms is also provided through a chart to give users an idea of how much interest is being paid. 

    Learn more about the RRSP Loan Calculator 

    The RRSP Loan Calculator looks at the potential value of your RRSP compared to the potential total loan payment. To get these figures, the following factors are considered:

    Years until Retirement: Calculated by subtracting your current age from the age you plan on retiring. The typical age of retirement in Canada is 65. This is because Canadians can begin accessing government benefits such as CPP and OAS at this age. If you are unsure when you plan on retiring, using 65 as a benchmark is a good idea. 

    Rate of Return: An estimate of your expected annual net gain from your RRSP. This number will vary and depends on the type of investments held in your RRSP. 

    Unused RRSP Contributions: The maximum amount you can put into your RRSP this year. It is important to note that RRSP contribution room rolls over, meaning that unused room from from previous years can be used this year. 

    Loan Amount: The dollar amount that you are planning on borrowing that will be used to contribute into your RRSP.

    Payment: The monthly amount that must be repaid to the loan issuer.

    Interest Rate: The rate you are expecting the lender to charge on your loan.

    Duration of the Loan: The length of the loan measured in years.

    Marginal Tax Rate: The amount of tax you pay on the “next dollar” of income. This is different than your average tax rate, which takes into consideration all of your income. 

    Percentage of tax return that will be used to pay back the loan: The portion of your tax return you are planning on using to repay part of your loan instantly.

    Other factors to consider

    While the calculator can provide a good overview of the potential costs and benefits of taking out an RRSP loan, other factors must be considered as well. It is important to understand that with some exceptions such as withdrawals through the Home Buyers’ Plan or the Lifelong Learning Plan, RRSPs are locked until retirement. This means that you are foregoing spending power in the present day in favour of future growth. 

    While this may work for some, individuals should consider their personal situation. For example, making monthly loan payments could take money away from other goals. For those looking to purchase a home or fund other short-term purchases, other tax-advantaged accounts such as the FHSA and TFSA should also be considered.

    FAQs About Our RRSP Loan Calculator

    How much does an RRSP can reduce my taxes?

    The amount of money you will get back in tax returns from RRSP contributions is based on your marginal tax rate. As RRSP contributions reduce your taxable income, those in higher tax brackets will see larger returns per dollar contributed. A rough estimate is that most individuals will see 20 to 50 percent of their RRSP contributions returned to them.

    What is the maximum amount I can put into my RRSP?

    Each year, contributions are capped at the lesser of the following two items: 18% of your previous year’s income or the annual RRSP limit set by the government. In 2023, the yearly limit was set at $30,780. Unused contribution room from previous years can also be carried forward.

    What is the difference between a TFSA and a RRSP?

    While both TFSAs and RRSPs are considered tax-advantaged accounts, they have a few key differences. One of the main differences is that RRSP contributions are made with pre-tax dollars, while TFSA contributions are made with after-tax dollars. This means contributions to TFSAs will not reduce the amount of tax you need to pay on income. Another main difference is that withdrawals from TFSAs, including any investment growth, are tax-free —  while RRSP withdrawals are considered taxable income.