Line Of Credit In Vancouver

[vic988]

Kind of related -- just wondering if anyone has thought about/talked to a financial advisor about investing with an LOC. It seems like a lot of the mutual fund investments out there get returns on average higher than the rate of interest paid on the LOC. Looking for opinions on this -- and whether anyone has done this before/is currently doing this, or knows if there are regulations on the LOCs prohibiting this?

[frenchpress]

55 minutes ago, vic988 said:

Kind of related -- just wondering if anyone has thought about/talked to a financial advisor about investing with an LOC. It seems like a lot of the mutual fund investments out there get returns on average higher than the rate of interest paid on the LOC. Looking for opinions on this -- and whether anyone has done this before/is currently doing this, or knows if there are regulations on the LOCs prohibiting this?

I can't imagine there is a regulation prohibiting it. You can generally take as much money out of the LoC as you want up to your limit, and then you can do what you want with it.

I've thought about doing it. But when I crunched the numbers and explored possible scenarios, I wasn't sure the potential upside was worth the risk. Especially if you're too busy with school to pay careful attention to managing your investments. For example, if you buy mutual funds and the market crashes, you'll have less principal to pay back the LoC. For really long term investments, big drops in the market are OK if you can hold on and make the money back 5 or 10 years down the road. But with the student LoC you may not have this option of waiting, as there is a defined timeline when you need to start paying it back. So then you're on the hook for any difference. Also keep in mind that, because this is money you want to pay back, you're not going to want to put it in a registered account -- so you'll need to pay capital gains tax on 50% of anything you make, which eats into potential returns.

Edit: I suppose if you could find an investment that guarantees your principal then it might be worth the risk, because at least then you're only risking that you have to pay the interest for the extra money you borrowed. Vancity used to have some of these, but I can't find them on their website anymore -- and generally you needed to lock anything like that in for at least 5 years. 

 

[madethistoaskquestions]

hey, for those of you who got LOCs already, when you signed your agreement, what kind of guarantee did you have that the loan included the 1-2 year grace period? I'm about to sign at RBC, choosing them because of the offer than they're giving (2 year grace period after residency), but at the point of signing the loan agreement, there's really nothing in writing anywhere about the two year grace period... was this the case for y'all? should I be concerned that the two year grace period isn't really reflected anywhere other than their current website?