The combination of rock-bottom interest rates and an ongoing stock market recovery has providers of RRSP catch-up loans preparing for a busy season. However, some are toughening up their requirements for these loans in light of the recent credit crisis.

There is no doubt that there is a renewed sense of confidence in the economy these days, more than seven months after the stock market bottomed out. And that is prompting investors to pump more money into their retirement savings.

To top it off, lenders are offering RRSP loans at bargain-basement rates. For instance, Steinbach Credit Union, the largest financial services co-operative in Manitoba, is offering loans for as little as 3.25%, says CEO Glenn Friesen, just one percentage point higher than the prime rate.

“I don’t think the Bank of Canada [overnight] rate has ever been this low,” he says. “I haven’t lived 100 years, but, in my lifetime, I’ve never seen it this low.”

Steinbach CU’s lending policies haven’t changed from a year ago, Friesen says. The same could be said for Toronto-based B2B Trust, a subsidiary of Montreal-based Laurentian Bank of Canada, which has also kept its underwriting criteria unchanged from last year.

“We don’t take unnecessary risks at the expense of the quality of our loan portfolio,” says Judy Chu, B2B Trust’s assistant vice president of product development and management. “For that reason, our lending program is strong. And we’re remaining committed to this line of business.”

But other firms have toughened up their approval criteria for loans in the aftermath of the recent credit crisis, requiring applicants to have higher credit ratings and net worth.

“The bar was raised at the beginning of the year,” says Paul Stadnik, regional vice president of banking products with Mackenzie Financial Corp. in Toronto. “It was done more in anticipation of defaults [than actual defaults]. It just became a little harder to borrow money.”

Stadnik says rates on Mackenzie’s RRSP loans, which are issued through subsidiary MRS Trust Co., vary from prime plus one percentage point to prime plus 4.5 percentage points this year. He adds that Mackenzie’s average loan is for $7,800; slightly more than half of the loans are for one or two years, while 30% have a 10-year term.

Self-directed RRSP loans through MRS have higher interest rates because “we don’t know where the proceeds are going, so we charge a little more,” Stadnik says. “If you’re taking out a Mackenzie RRSP loan, we get both ends of the sale, so we can do a little better on the loan rate.”

Although the rates are attractive, they’re not as eye-catching as they were last year, Stadnik says. That said, the difference is minimal. During the previous RRSP season, Mackenzie offered loans at prime minus one percentage point. (The prime rate has been sitting at 2.25% since the spring, down from 4% a year ago.)

“It’s all a function of the economic downturn and market crash,” he says. “Liquidity became dear and deposit rates went up. Loan rates had to follow.”

Stadnik says the majority of Mackenzie’s loans come in via its website. Advisors can apply online for their clients, supplying the necessary documentation; the loan will be funded, provided investors meet the minimum criteria. It’s no surprise fewer loans are getting done in person, he says, as Mackenzie offers a 1% bonus for online applications.

Chu says B2B has enhanced its online offering to make RRSP loan submissions quicker and easier, too. Dubbed “EASE,” the system gives advisors the ability to apply, track and monitor the status of their clients’ loans with a few clicks of a mouse.

“It’s more robust now. It makes fast credit decisions for advisors. They can come to our website to apply for a variety of loans [on behalf of their clients],” she says. “Before, they had to go to fund manager sites; now, we’ve centralized it on our site. It’s more one-stop shopping for the advisor.”

Clients have more options than just taking loans when playing catch up with their RRSPs, Friesen says. Instead, they can take out a line of credit. Smaller loans of a couple of thousand dollars can trigger a higher interest rate and involve a considerable amount of paperwork and branch visits, especially if loans are taken out year after year.

@page_break@“[The line of credit] works really well,” he says. “You can renew it without taking a lot of our time. We don’t have to do credit checks. You can draw down on it any time. And when you pay it off, you can draw down on it again.” IE