LOCs

[Guest Ollie]

Hi Jochi,

 

I don't know all the ins and outs of loan approval, but it seems like all you need is that acceptance letter and the LOC is no problem. I think even minor blips (that might keep someone else from getting a loan) are overlooked (although you could be approved for a lower amount). Any major credit problems would probably still be a concern for any bank.

 

My school expenses are around $20,000/year (maybe a little less) for the major stuff like tuition, books, equipment etc. The rest of my anticipated $120K debt will be from living expenses. But it's not all on LOC, some is also from student loans.

 

My LOC works just like a bank account (I'm with MD Management). For first year, $30,000 was made available to me. I have an ATM card and can deposit and withdraw at ATMs or at a branch. I can also write cheques from my LOC. The only difference is that my balance counts backwards. It started at $30,000 and goes down as I withdraw. Each month they charge me interest on what I have borrowed and that is withdrawn from the LOC as well (so you are paying interest on interest, but there is no way around that). I pay bills with online banking. The only annoying thing about MD Management/National Bank is that UofT is not set up for internet banking with them (I should really look into that).

[Guest Jochi1543]

So, Ollie, I'm a little confused with the way your account works. My impression is that every year you get $30K, and once you graduate, the interest on that will kick in, whatever the percentage is. But you say you are also paying interest when you withdraw money from your LOC account. Since the $$$ does not directly go to your school, you must then withdraw your tuition, right? If all withdrawals lead to additional interest, would I be right to conclude that you are basically getting double the interest?8o In that case, you are then slapped with accuring interest the minute you receive your $$$ and pay your freshman tuition, and that interest keeps getting deducted every month from your loan. Does it mean that by your senior year you actually have way less than $30,000 in your account accessible to you?

 

I've taken accounting and capital markets and my brain is still twisted with this thing.8o

[Guest Ollie]

Hi again,

 

Yes LOC's are confusing! One of the reasons I went with MD Management was that they were very good about explaning everything to me, whereas Royal Bank just made me more confused!

 

You only pay interest on what you have withdrawn from your LOC, not on the amount that is available to you. You pay interest on it from the moment you withdraw it, unlike student loans which are interest free until you graduate. So right now, I have withdrawn around $7000 from my LOC. Each month I am charged interest on that amount at 4.25% annually so I pay about $25 a month in interest (and as my balance increases, I'll pay more interest per month). They then withdraw that from my LOC which would make my balance $7025. This system doesn't change when I graduate. I will still be paying interest only on what I have withdrawn over the 4 years (not on the total amount that was available to me). Your question about having less than $30,000 is a good one. I'm actually not sure if that includes interest or not. Right now it's not an issue for me because I 'm nowhere near using the total amount, but that's yet another thing for me to look into.

[Guest Jochi1543]

Ollie, all I can say is :x . I guess I'll have to go with MD Management too.:rollin

[Guest Steve U of T]

Can anybody comment on their LOC experience with Scotiabank? I've been banking with them for a long time, and have been generally satisfied, so I'd prefer to open my LOC with them. Is there anything I'd be missing out on? I most certainly don't need the full amount up front (that should be a last resort for anyone, considering how much interest you'd have to pay throughout medical school, compared to withdrawing money as you need it). Is there anything I should know with regards to account fees, credit card fees, etc.?

 

edit: also, are there Scotiabank branches easily accessible in London?

[Guest wattyjl]

well, one advantage of having a big chunk up front is if you are thinking to save on rent and buy a place... with interest and mortgages rates where they are now, it could (always a risk of course) save quite a bit of money in the end.

and you should be able to look up branches online.

[Guest Steve U of T]

Well I'm not sure if this would be possible as a student, but with a decent credit rating, you can get a mortgage at a rate well below prime (my brother pays prime - 0.6%). That would be much cheaper than maxing out your LOC at prime (although you'd probably have to start making large payments right away). Anyways, I seriously doubt I'll be buying a place to live, so I'm really not concerned with getting the money up front. So does anybody have experience with Scotiabank? (I found some conveniently located branches in London, by the way).

[Guest Ollie]

I most certainly don't need the full amount up front (that should be a last resort for anyone, considering how much interest you'd have to pay throughout medical school, compared to withdrawing money as you need it).

 

There's a difference between the money you have access to and what you are paying interest on. For example, with Royal, they give you access to 150K right away, but you still only pay interest on what you withdraw from that.

 

I think some important things to look into with LOC's are if the interest rate stays at prime throughout residency, and when you switch from interest-only payments to principle payments (does it switch after graduation or after residency). Although I hope to start paying principle as soon as possible, it's good to know that I don't need to worry about the principle until after residency just in case I run into some problems.

[Guest satsumargirl]

I think some important things to look into with LOC's are if the interest rate stays at prime throughout residency, and when you switch from interest-only payments to principle payments (does it switch after graduation or after residency). Although I hope to start paying principle as soon as possible, it's good to know that I don't need to worry about the principle until after residency just in case I run into some problems.

 

I was just at RBC this weekend and while the interest rate remains at prime during school and while in residency and the 12 months grace period after residency, it will change after that. Because your LOC will change from a student LOC to another kind...so probably prime +1 or 2, will depend on the time I guess.

 

There seems to have been some confusion earlier on in the thread about OSAP and LOC.

 

OSAP is the way to go while in school for sure, because the government will pay the banks the interest while you are in school. You then have 6 months after graduation (not residency but after graduation from med school) to consolidate your loan and start making payments. While you do not need to pay any interest for that 6 month grace period you accumulate it (gov no longer pays it at this point) and it gets added in to your principle on consolidation. The thing with OSAP is they will give you a maximum time of 10 years to pay all your loan back. So depending on how much loan you have that could be a subtantial chunk of your meager 45K or so resident income (less taxes etc.). OSAPs interest rate is about prime +1.5 or 2...I can't remember. The interest you pay is tax deductible (and you will feel sick when you get your statement at the end of the year spelling our how much interest you paid!) So really, you aren't paying prime +1 or 2 when you factor in the tax break.

 

I think it would be challenging (as a single person) to pay for living expenses, pay for OSAP AND make principle payments on any LOC. Depending on how much of each you have.

 

Some people when they graduate pay their OSAP off with their LOCs, then they don't have to make huge OSAP payments and can continue just paying interest while in residency. But then you don't have the tax advantages of OSAP. And also, with OSAP, if for some reason you become unemployed or for whatever reason you have no income, you can apply for interest relief and you can get up to 6 months where you dont' have to make payments....that won't happen with an LOC.

 

So there are pros and cons to both.

But many of us will end up with both since OSAP does not give us enough to cover our expenses...we have no choice but to get an LOC (even though it is the scariest thing I have ever had to do).

 

Sometimes I wonder if it is feasible to have a part-time job while in school (at least 1st and 2nd year) but when I think of the monstrous debt I am going to be in, I think that the few thousand I make might not be worth the added stress of a job. I mean, if I owe 130k, 140k or 150k...does it really matter?? It's still a mortgage!

[Guest Steve U of T]

Quote:

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I most certainly don't need the full amount up front (that should be a last resort for anyone, considering how much interest you'd have to pay throughout medical school, compared to withdrawing money as you need it).

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There's a difference between the money you have access to and what you are paying interest on. For example, with Royal, they give you access to 150K right away, but you still only pay interest on what you withdraw from that.

Notice I said you'd be paying higher interest "compared to withdrawing money as you need it". I have a pretty good understanding of how lines of credit work. I had just noticed that a number of people were saying that RBC offers the best line of credit because the full amount of credit is available right away, implying they intended to withdraw a large sum of money early on. If you need it, then you need it, but it'll cost thousands of dollars more in interest.

 

Can people comment on the banking fees you pay through RBC or MD Management? I noticed on their website, Scotiabank's professional student account costs $2.95 or $9.95/month depending on the services (this is for banking services, not the LOC, although I believe it is required).

[Guest nextstopmd]

Hey Steve,

 

At RBC the banking services are free. At my branch they also threw in free cheques.

 

Another important factor to consider is where the bank branches actually are in terms of where you're planning on being most of the time. It doesn't do you much good to be at bank X if there are no branches or bank machines around you and it always costs you 2.00 extra to take money out every time. Over 4 years that can really add up.

[Guest anatomist]

Does RBC or MDM "require" previous student loans to be rolled into the LOC on sign-up?

 

If so, that would have considerable implications (for many at least) in terms of the pertinent interest calculations.

 

thanks in advance,

 

Kevin

[Guest kupo]

I dont think you can go wrong with either Royal Bank or National Bank. Its a matter of preference really. For me, it doesnt matter much to me. I'm certainly not going to touch this LOC until I absolutely have to.

 

Something of interest about MD Management. My financial advisor told me that the 1st year limit for the LOC is now a max of $50 000 instead of $30 000.

[Guest satsumargirl]

well, one advantage of having a big chunk up front is if you are thinking to save on rent and buy a place... with interest and mortgages rates where they are now, it could (always a risk of course) save quite a bit of money in the end.

 

This isn't always true. Banks and other financial companies may like you to think that owning is better than renting since you are building equity BUT having you believe that is to their advantage because you will take out a mortgage.

 

When purchasing a property you must consider property taxes, the cost of maintenance (surprise repairs can be costly), the cost of purchasing and selling, condo fees if you buy a condo etc...

 

And since you may have to move for residency once your school is done, chances are you will only want to live there for 4 years. 4 years generally is not enough time for your property to increase in value enough to make you any money.

AND property taxes increase at a much higher rate than rent increases every year.

 

If you shared your place with other students, charging them rent, then maybe it could make some sense. But owning a place and paying for it all on your own with your LOC and no income probably isn't a good financial decision.

[Guest wattyjl]

those are all very reasonable points i considered before purchasing. i saw myself paying 850 /mo rent (about $35K for 3yrs incl. compounded interest at current prime).

 

there are a lot of variables that are important and unfortunately can't be predicted: what will happen to the housing market (will it stay hot) and what will happen with prime rate (will it go up significantly) are obvious key examples.

 

so this kind of investment is always a gamble, but if you do rent out a room and if you can get about 3% / yr growth on the property, which is not at all unreasonable (and may be a large underestimate) for some places in canada (e.g. calgary), then breaking even with renting is for sure, and living 'for free' is very possible.

 

of course if prime jacks up then it's a problem...

 

i'm keeping my fingers crossed.

[Guest Platinum84]

Just applied and was approved for my RBC line of credit.

 

Seems like a good deal. I was deciding between MD and RBC.

 

The service was fast - I called during the day so there wasn't much of a wait on the phone. I was approved in about 3 hours and have my appointment to sign the papers tomorrow. Very nice experience.

[Guest little endian]

Has anyone used CIBC for their LOC?

[Guest satsumargirl]

CIBCs max limit is not competitive with RBC or MDM. I don't recall exactly, but I think it is only a max of 100k if you are a prof student.

 

But I think there was an earlier post where someone quoted even lower of around 10k per year?? Need to scroll back.

 

I guess it all depends on how much $$$ you need.

[Guest Steve U of T]

According to their website, you can get up to $125,000. Sadly none of the banks give too many details on their website, but from what's there, the CIBC program is fairly similar to the other banks, aside from the slightly lower maximum credit (which is probably negotiable if you have a good credit rating).

[Guest physiology06]

Hi,

 

I've seen a lot of posts that refer to RBC's LOC at prime.

 

I just went on RBC's website: it states that the interest rate is prime + 1%.

 

www.rbcroyalbank.com/RBC:...s_pro.html

 

And it's the one for professional students, medicine included.

 

Very confused about this LOC thing,

 

physiology06

[Guest Platinum84]

RBC has a special program for medical students (separate from the professional program).

 

The offer is prime - I can confirm personally as I just signed the papers today (4.25% right now).

 

You can visit the link below for details:

 

www.rbcroyalbank.com/RBC:.../plan.html

[Guest CareBear15]

In response to those wondering if they should stick with the bank they're currently with to get an LOC (for convenience sake) and what CIBC offers...

 

Initially I went with CIBC because I had been a long-time customer and it made sense to makes things easy and stick with the same accounts. However, I quickly learned that there is no use in sticking with a bank that is not competitive in the professional student LOC field. CIBC offers 25,000 each year and you have to be re-approved every year after... it's a hassle and does not compare to banks like RBC which give you 150,000 upfront. It really isn't too bad to have accounts in different banks now with online banking and all that.

 

What really matters in all this LOC business is dealing with a bank agent that is knowledgeable with professional LOCs and deals with medical students on a regular basis.

[Guest physiology]

RBC's med/dent line of credit:

 

www.rbcroyalbank.com/stud.../plan.html

[Guest NurseNathalie]

Quoting:

 

"RBC has a special program for medical students (separate from the professional program).

The offer is prime - I can confirm personally as I just signed the papers today (4.25% right now)."

 

A word of Caution: when I went to RBC, they explained that although they give you the full amount of $150 000... you do pay the interest on what you use, on a monthly basis (AT PRIME)...

 

what you also have to consider is once you finished school and have gone through your '6 months grace period' (before you have to start repaying your loan), you then have to go back to RBC and negotiate the terms for repayment. Usually amortized over 120 months, at a rate of then PRIME PLUS 4% ! just keep this in mind. (please correct me if I am wrong!)

 

MD management does not have a set amortization rate and they are locked in at a certain rate over prime for loan repayment.

 

[Guest MikeD]

Hi NurseNathalie,

 

Actually just this past weekend I finalized my LOC with Royal Bank. A couple of points I'm sure about:

You're considered a student up until you are finished your residency, therefore the rate doesn't climb past prime until then.

 

When finished residency, you don't have to amortize and can continue with a "professional" line of credit (not sure the rate though, but my undergrad student line of credit with royal was converted into a standard line of credit at prime + 2.5, so 4 seems a little high, although I could be wrong)