What happens to our LOC's now that we've matched?

[lil_doc]

I'm with Scotiabank. From what I hear - you pay your interest mostly in residency and try to chip at the principal as much as you can. The BIG repayment comes 1 year after you've started working - then you've got 10 years to pay it back. 

Is that the gist? I'm meeting with my advisor eventually but just curious! 

[rmorelan]

13 minutes ago, lil_doc said:

I'm with Scotiabank. From what I hear - you pay your interest mostly in residency and try to chip at the principal as much as you can. The BIG repayment comes 1 year after you've started working - then you've got 10 years to pay it back. 

Is that the gist? I'm meeting with my advisor eventually but just curious! 

yeah that is about it! you can chose to pay more than the interest of course as you mention. When you go into repayment you may have a splitting of the loan into a smaller personal LOC and loan part that is just to be paid off. You can also have variable repayment plans (some up to 15 years) although most pay it off way before that. 

One other note - if you do a fellowship that counts like residency - so for me I "gain" two years of interest only status. That is important because you may need that year of grace at the end to find a job, set up your practice etc and you will still have it if you want to do more advanced training. 

[distressedpremed]

If you do a search, there are helpful threads in re: to debt and repayment, anxiety, etc. 

I would recommend keeping on top of the interest payments and if possible, paying it down bit by bit. The Bank of Canada is projected to raise the interest rate again, and even a 0.25% increase hurts the wallet really badly on a PGY-1 salary (the more you owe, the more it hurts). 

Of course the big repayment comes when you're staff, but even if you can pay a bit down here and there it helps a lot

[md2018plz]

If you haven't yet, get prime - 0.25%.

No principle needed to be repaid until after residency technically. If you have government loans, think twice before paying them off with your LOC. Make sure you won't need that LOC money for something. Sure, government loans have higher interest rates (not in all provinces though, MB has 0% interest on student loans while ON is like 5% ish). But interest is tax deductible. Consider paying off your government loan with your own money to save that spare LOC room for emergencies. 

[rmorelan]

Just now, md2018plz said:

If you haven't yet, get prime - 0.25%.

No principle needed to be repaid until after residency technically. If you have government loans, think twice before paying them off with your LOC. Make sure you won't need that LOC money for something. Sure, government loans have higher interest rates (not in all provinces though, MB has 0% interest on student loans while ON is like 5% ish). But interest is tax deductible. Consider paying off your government loan with your own money to save that spare LOC room for emergencies. 

after tax deductions even the government loans in Ontario as an example are still more expensive than the LOC at prime -0.25% after the math is done. 

So here is the issue - do you trade off flexibility in the LOC by using to cover the other loan for a lower total overall cost?  That is a bit of a personal choice, and depends on the length of your residency, your current costs/known possible emergencies that apply to you and how much room is on the LOC. 

Most tend to pay if off but above it is a choice. 

[jfdes]

Does anyone take out the full amount of the LOC and invest it (say in a market index fund, or CCP strategy)? Of course it depends on what residency you match to, but once you match you're pretty safe in terms of income for the rest of your life. And isn't it usually pretty difficult to get a loan at such a good rate?

[rmorelan]

5 minutes ago, jfdes said:

Does anyone take out the full amount of the LOC and invest it (say in a market index fund, or CCP strategy)? Of course it depends on what residency you match to, but once you match you're pretty safe in terms of income for the rest of your life. And isn't it usually pretty difficult to get a loan at such a good rate?

People are always tempted to do that  Particularly lately as the market as been going up. I haven't had a year with say 30% decline in the market in some time (but we will at some point ha) to temper the enthusiasm.  I know some people who have done it with a large fraction of their LOC - their personal choice.

It is usually quite difficult to get a prime -0.25% at our level  for sure. In theory the market return long term would be higher than that rate if you could ride out the waves. However a ton of people have LOCs tied to their mortgage which would be at or below the current LOC rate we have. Most home equity loans right now is half a percent lower for instance. So many people could do it - many people have very large amounts available on those types of loans. 

There are a few things - you have to service the debit so that would roughly be a 9K a year expense you have to manage. When you start out at 55K a year and may be in a expensive city that can be tight. If the interest rates rise to more normal levels - say 5% range which is pretty historical (there are already suspected 2 more increases coming this year by many) that jumps 12-13K. That is a real risk to manage - roughly a quarter to a third of your after tax income is going to interest payments.  

You have a lot of expenses in residency that are bulk payments each in the few thousand range - royal college - 5K, LMCC part 2 - 2.5K, any electives, interviews for fellowships, conferences for networking... you would have to be ready for that. 

and nothing could go wrong. You cannot get injured,  have any issues finding work at the end, be able to ride out the time it takes for you to get up to fully practice and wait for the government to actually pay you (months), never go on maternity/paternity level, no unexpected bulk purchases (car explodes, surprise trips). The higher your residency, the more income you have so the less some of that matters.   

Basically there are people that do something like that every time the interest rates are relatively low. It is risky of course and not shockingly many people get burned when the markets fall and it takes a few years to recover to full strength, and when rates rise (some of that doesn't apply to us as much (but it still isn't by a long shot risk free)- the the classic firestorm is interest rates rise, the economic tanks so stocks fall, and the person loses their job because well the economy tanked again so they have to sell a major loss).  

[shematoma]

If a person was to do a fellowship and get a job in another country, wouldn't another option simply be to default on the LOC, assuming you didn't care about your Canadian credit score? It's a private debt so the bank only has 2 years to find you and recover the money and if they don't it becomes statute barred.

[JohnGrisham]

17 hours ago, shematoma said:

If a person was to do a fellowship and get a job in another country, wouldn't another option simply be to default on the LOC, assuming you didn't care about your Canadian credit score? It's a private debt so the bank only has 2 years to find you and recover the money and if they don't it becomes statute barred.

I mean, if you want to leave canada and not come back...then sure there are things you can do hah. Not necessarily advisable though.

[rmorelan]

1 hour ago, JohnGrisham said:

I mean, if you want to leave canada and not come back...then sure there are things you can do hah. Not necessarily advisable though.

I mean.....isn't that basically stealing? ha. 

Not a lawyer but what is stopping them from going after you with that route? All the countries your medical degree would have value in for the most part would have extradition treaties to Canada. Since you would be practicing medicine I assume you would not bet that hard to track down. 

 

[indefatigable]

18 minutes ago, rmorelan said:

I mean.....isn't that basically stealing? ha. 

Not a lawyer but what is stopping them from going after you with that route? All the countries your medical degree would have value in for the most part would have extradition treaties to Canada. Since you would be practicing medicine I assume you would not bet that hard to track down. 

Debtor's prison are long gone - not paying debts is not a criminal offense, so extradition treaties don't apply.  Banking system is different - so even going bankrupt in one country would have no impact on a different country.  It would be more challenging for sure to try to garnish wages etc in a different country - I don't even know if collecting agencies go across borders.      

[rmorelan]

1 hour ago, marrakech said:

Debtor's prison are long gone - not paying debts is not a criminal offense, so extradition treaties don't apply.  Banking system is different - so even going bankrupt in one country would have no impact on a different country.  It would be more challenging for sure to try to garnish wages etc in a different country - I don't even know if collecting agencies go across borders.      

Not sure  

I would like to think there is some form of intent here - I mean it is one thing if you cannot pay your debits, and another in my mind if you don't even try. I have heard of some cases of people just withdrawing the entire LOC and never going to medical school, and leaving the country a long time ago but I don't remember the outcome. 

Going through all of this just to get access to the 275K without any thought to actually going to med school (but still wanting their UG degree). I guess there are harder ways to generate that kind of money

[indefatigable]

13 minutes ago, rmorelan said:

Not sure  

I would like to think there is some form of intent here - I mean it is one thing if you cannot pay your debits, and another in my mind if you don't even try. I have heard of some cases of people just withdrawing the entire LOC and never going to medical school, and leaving the country a long time ago but I don't remember the outcome. 

Going through all of this just to get access to the 275K without any thought to actually going to med school (but still wanting their UG degree). I guess there are harder ways to generate that kind of money

The sum is large enough that the bank would probably seek to recover loss.  In principle intent matters, but in reality don't think it does.  Since the money was loaned on a contractual basis, between two private parties, based on non-fraudulent representation,  then there's no crime as far as I can tell.  Doesn't mean the bank wouldn't be upset nor does it mean it's a real option to consider, but there's no legal reason for someone to go to med school - that's a pretty far fetched action kind of odd to say the least for a med student. Maybe that's why some banks loan everything out in increments based on enrolment. 

[rmorelan]

59 minutes ago, marrakech said:

The sum is large enough that the bank would probably seek to recover loss.  In principle intent matters, but in reality don't think it does.  Since the money was loaned on a contractual basis, between two private parties, based on non-fraudulent representation,  then there's no crime as far as I can tell.  Doesn't mean the bank wouldn't be upset nor does it mean it's a real option to consider, but there's no legal reason for someone to go to med school - that's a pretty far fetched action kind of odd to say the least for a med student. Maybe that's why some banks loan everything out in increments based on enrolment. 

it is exactly why some of them do The cases I mentioned were why Scotia changed its policy.