RRSP loans and borrowing to invest: costs, risks and examples

Updated November 2026

An RRSP loan is a short-term loan used to make an RRSP contribution, often near the deadline. Repaid quickly with the tax refund, it can be a modest, controlled tool. Borrowing larger sums to invest for the long term is a different matter: it magnifies losses as well as gains.

How an RRSP loan works

You borrow from a bank or credit union, often in January or February, and the money goes straight into your RRSP.
You deduct the contribution on your return and get a refund based on your marginal tax rate.
You use the refund to pay down the loan, and repay the rest over the following months.

The interest on money borrowed to contribute to an RRSP is not tax-deductible. The CRA lists it among the carrying charges you cannot claim, along with interest on money borrowed for a TFSA, FHSA, RESP and some other registered plans.

Worked example: a short RRSP loan

Dana has $10,000 of unused RRSP room and a 30% marginal rate. In February she borrows $10,000 at 6% and contributes it.

Tax saving: $10,000 × 30% = $3,000, received as a refund in spring.
She pays the $3,000 refund straight onto the loan, leaving about $7,000.
She repays the rest over the year. Total interest is roughly $300, depending on timing.

Result: $10,000 is working in her RRSP a year or more sooner, for a cost of a few hundred dollars in interest. The plan only works if she really does use the refund to pay down the loan and can afford the monthly payments.

When an RRSP loan can make sense

You have unused room and a marginal rate high enough to make the refund worthwhile.
You can repay the whole loan within about a year, using the refund for a large part of it.
The monthly payments fit your budget without new credit card debt.
You would have saved the same amount anyway, just more slowly.

An alternative is to set up automatic monthly contributions equal to what the loan payments would have been. You skip the interest, and the money still gets into the plan steadily. The Ontario Securities Commission’s investor education site suggests weighing the deduction against the full cost of the loan in the same way.

When it is a poor idea

Your marginal rate is low, so the refund is small.
The loan would take several years to repay. Interest keeps adding up and eats the benefit.
You plan to spend the refund rather than repay the loan.
You already carry high-interest debt.

Borrowing to invest: leverage

Larger, long-term borrowing to invest (often called leverage) is usually done in a non-registered account, using an investment loan, a line of credit, a home equity loan or a margin account. It is a different risk from a small RRSP loan.

Gains and losses are both magnified

Take two investors who each have $20,000. One invests only her own money. The other borrows another $20,000 at 7% (interest $1,400 a year) and invests $40,000. Tax and fees are ignored.

One year later
Market result	No borrowing	With $20,000 borrowed
Up 20%	$24,000 (+20%)	$48,000 − $21,400 owed = $26,600 (+33%)
Flat	$20,000 (0%)	$40,000 − $21,400 = $18,600 (−7%)
Down 20%	$16,000 (−20%)	$32,000 − $21,400 = $10,600 (−47%)

A 20% fall costs the borrower almost half of her own money. Even a flat year loses money, because the interest must still be paid. And the loan must be repaid in full, with interest, however the investments do.

Margin calls

In a margin account, the investment firm lends against the value of your holdings. If their value drops below the firm’s required level, it issues a margin call: you must add cash or securities quickly, or the firm can sell your investments, often at low prices, to cover the loan. A margin call can turn a temporary market drop into a permanent loss.

Other risks

Interest rates can rise on variable-rate loans and lines of credit, raising your costs.
Your income can fall. Job loss or illness can make payments hard just when markets are down.
Home equity is at risk if you borrow against your house.
Tax is not a safety net. Interest on money borrowed to earn income in a non-registered account may be deductible as a carrying charge, but that only softens the cost; it does not protect you from losses. Ask a tax professional before relying on it.

What regulators say

Canadian securities regulators warn that leverage is a high-risk strategy. The Ontario Securities Commission’s GetSmarterAboutMoney site explains that borrowing to invest amplifies losses, that a margin account can lead to a margin call, and that you must repay the loan plus interest whatever happens to the investment. It also notes that interest on an RRSP loan is not deductible.

Be very wary of anyone who urges you to borrow, especially against your home, to buy their product. Ask for the risks in writing, check that the person is registered (Choosing an advisor), and read Investment scams.