Should I pay off a loan using my RRIF?

The math says no, but don’t overlook your own mindset

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From the June 2016 issue of the magazine.

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Q: I’m retired and used a line of credit to do repairs on my house. Should I draw from my RRIF to pay it off or just keep paying down the line of credit gradually?

—Marlene Crew, via email

A: Math and mindset: This debt repayment question requires you look at both. For instance, does the outstanding debt from the line of credit keep you up at night? If it does, there is a greater benefit to paying it off in full. If you can still sleep without doing Nyquil shots, the math supports a plan to pay it off gradually. According to Allan Norman, a CFP with Atlantis Financial in Barrie, Ont., you should “draw enough to move your taxable income to just below the next marginal tax rate and use that money to pay down your line of credit.” Just avoid moving up to a new rate as you’ll pay more income tax and, at the same time, risk reducing the Guaranteed Income Supplement or other benefits you currently receive. One last thought: Shop around for the lowest rate on your line of credit. You can often lower the rate if you secure the loan against an asset, such as your house.

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