LOC question

[Oak]

Hey I've heard that the banks don't really care what you do with the money that they give you (i.e. you can use it on tuition or pay off your other debts)..

 

So, since LOC's interest is like ~2.5%.. could I possibly take out say, $200,000 in LOC and use $20,000 in tuition, then save the 180,000 in a 4% GIC or savings account? That shall cover the interest and even make me some money..

 

Thanks in advance!

[rmorelan]

Hey I've heard that the banks don't really care what you do with the money that they give you (i.e. you can use it on tuition or pay off your other debts)..

 

So, since LOC's interest is like ~2.5%.. could I possibly take out say, $200,000 in LOC and use $20,000 in tuition, then save the 180,000 in a 4% GIC or savings account? That shall cover the interest and even make me some money..

 

Thanks in advance!

 

sounds tempting The don't give you the money all up front as a rule, most only give out a reasonable amount each year for that years expenses. Also the interest rate is prime, which is normally just above the rate you can get on a GIC.

[Wut?]

sounds tempting The don't give you the money all up front as a rule, most only give out a reasonable amount each year for that years expenses. Also the interest rate is prime, which is normally just above the rate you can get on a GIC.

 

My RBC LoC was released to me in one lump sum! I do know that ScotiaBank (not sure about other banks) do allocate a certain $ figure per year. There are also regional differences in products offered, so best bet is to shop around yourself!

[Oak]

Thanks for the reply guys.

 

Looking at sthe 5 year GICs, some are definitely higher than the ~2-2.5% LOC that people have gotten from banks:

 

http://money.canoe.ca/rates/gics_5.html

 

and since you don't have to pay the LOCs back in a few years, perhaps we could borrow the maximum possible lump sum and throw all the extras into GICs? I don't see why we can't do that (unless there's some sort of regulation or sth)

[rmorelan]

Thanks for the reply guys.

 

Looking at sthe 5 year GICs, some are definitely higher than the ~2-2.5% LOC that people have gotten from banks:

 

http://money.canoe.ca/rates/gics_5.html

 

and since you don't have to pay the LOCs back in a few years, perhaps we could borrow the maximum possible lump sum and throw all the extras into GICs? I don't see why we can't do that (unless there's some sort of regulation or sth)

 

I suspect the reason the rates are higher is because the banks believe the interest rate 3 years from now will be higher than the 2.75% they are posting for 3 year fixed loans (and so on). the one year rate is considerably below the current interest rate.

 

Probably a logical thought as interest rates are historically the lost they have every been. Banks aren't going to leave themselves open

[rmorelan]

My RBC LoC was released to me in one lump sum! I do know that ScotiaBank (not sure about other banks) do allocate a certain $ figure per year. There are also regional differences in products offered, so best bet is to shop around yourself!

 

Sure that does happen Still never saw the point for most people though to be honest but it can be arranged.

[cheech10]

The issue is, with a 5 year GIC you can't redeem it beforehand without paying a penalty. So you can't access ANY of the money invested until the 5 year term ends. Unless you have an alternate way of paying for years 2 through 4 of med school, this isn't an option.

 

On top of this, you take a risk that the interest rate you pay on the LOC won't go up higher than that you receive on the GIC, which IMO is a big risk given that we are seeing all time low interest rates now. What happens if prime goes to 6% (still lower than the historical average) and you're only getting 4% on your 5-year GIC?

[Oak]

The issue is, with a 5 year GIC you can't redeem it beforehand without paying a penalty. So you can't access ANY of the money invested until the 5 year term ends. Unless you have an alternate way of paying for years 2 through 4 of med school, this isn't an option.

 

On top of this, you take a risk that the interest rate you pay on the LOC won't go up higher than that you receive on the GIC, which IMO is a big risk given that we are seeing all time low interest rates now. What happens if prime goes to 6% (still lower than the historical average) and you're only getting 4% on your 5-year GIC?

 

oh I see. So the prime interest rate offered for the LOCs aren't fixed, but actually change from time to time depending on the market?

[cheech10]

The interest rate is at prime, which is changed by the banks based on the Bank of Canada's lending rate to the banks (and a few other factors) a few times a year. It definitely changes over time. Unfortunately, no bank will offer you a higher interest rate in a guaranteed investment (like a GIC) than they can charge you. For example, compare 5 year closed mortgage rates against 5 year GIC rates. You COULD try to generate a better return than your interest rate with non-guaranteed investments (stocks, mutual funds, bonds), but then you run the risk of losing your principal (and potentially not having enough to fund med school).

[dashley]

just wondering where people decide to get their LOC's

 

http://www.premed101.com/forums/showthread.php?t=42069

[Martin Louis the King Jr.]

I got a conditional approval for my LOC from Sotia bank and the condition is that i have to close all other credit cards and personal lines of credit i have with other banks. Did anyone have to go through this? I really don't want to close those other credits which i have built over the years. Any advice/experiences???

[justletmein]

I got a conditional approval for my LOC from Sotia bank and the condition is that i have to close all other credit cards and personal lines of credit i have with other banks. Did anyone have to go through this? I really don't want to close those other credits which i have built over the years. Any advice/experiences???

 

that is obscene. switch banks for your LOC. There should be no strings attached.

[japlanet]

I got a conditional approval for my LOC from Sotia bank and the condition is that i have to close all other credit cards and personal lines of credit i have with other banks. Did anyone have to go through this? I really don't want to close those other credits which i have built over the years. Any advice/experiences???

 

There's no reason you should have to do this.

 

What they CAN do, though, is deduct the other credit lines etc that you have from the $150,000 . . . i.e. they don't want to have you carrying 150K with them and another 50K somewhere else - so you can close the other one or just take 100K from Scotia . . . but they can't make you cancel the other lines/cards.

[rmorelan]

I got a conditional approval for my LOC from Sotia bank and the condition is that i have to close all other credit cards and personal lines of credit i have with other banks. Did anyone have to go through this? I really don't want to close those other credits which i have built over the years. Any advice/experiences???

 

scotia let me keep mine, but the total amount of credit i could have was still the 200,000. so keeping those other cards just dropped my max a bit - seemed fair and I didn't care so I went with it.

[HBP]

scotia let me keep mine, but the total amount of credit i could have was still the 200,000. so keeping those other cards just dropped my max a bit - seemed fair and I didn't care so I went with it.

 

Yeah eh? I probably have around 15-20k in credit on various credit cards (0 balances). They wouldn't give me the full 200k on my LOC?

 

That's ridonculous.

[Ollie]

I got a conditional approval for my LOC from Sotia bank and the condition is that i have to close all other credit cards and personal lines of credit i have with other banks. Did anyone have to go through this? I really don't want to close those other credits which i have built over the years. Any advice/experiences???

 

I could see them maybe subtracting your existing debt from what they will lend you, but there is no reason why you should actually have to close them. Closing credit cards actually negatively effects your credit rating. It is better just to cut up the card.

[BigM]

MD Financial asked me to close my LoC with CIBC. I don't mind as I am planning on cutting all ties with CIBC and opening up a chequing account with MD Financial. However, it will be a problem if my application is somehow denied as it will have cost me my current LoC.

[BigM]

I could see them maybe subtracting your existing debt from what they will lend you, but there is no reason why you should actually have to close them. Closing credit cards actually negatively effects your credit rating. It is better just to cut up the card.

 

I remember talking to the head of Credit Canada about this and her advice was if you have a bunch of credit cards that you don't use, have them canceled gradually (i.e. one card every six months). I don't imagine you want to just cut up your cards and pretend like they never existed when the credit is still tied to your name. However, canceling 3 cards at once would look suspicious on a credit check.

[HBP]

I remember talking to the head of Credit Canada about this and her advice was if you have a bunch of credit cards that you don't use, have them canceled gradually (i.e. one card every six months). I don't imagine you want to just cut up your cards and pretend like they never existed when the credit is still tied to your name. However, canceling 3 cards at once would look suspicious on a credit check.

 

I believe you should never cancel your first (i.e. oldest) card.

[anat15]

Can someone explain (in the simplest terms possible!!) how this line of credit works? You have to pay the interest on what you owe regularly right? So how does that work exactly, if you withdraw little bits at a time? e.g. I'm planning on using LOC to pay for rent, groceries, etc. so what is the best and most cost-efficient way to use the LOC? What kind of interest payments am I looking at? And if the idea of getting a LOC is because I don't have any money... where do I get the money to pay the interest?? (p.s. I am financially challenged... please don't mock!!)

[chuck62]

if you don't plan on having income, ie ability to pay interest, then i would suggest going with scotiabank. they don't ask for you to make interest payments, what they do is simply put that monthly amount of interest onto your total debt to them.

if at anypoint, you come into money and want to pay off the principal and some interest, you are able to do that. (for ex with a summer job).

 

I would suggest, however, that on top of a line of credit, you also get a student loan. It is a good idea to exhaust your students loans before you start using your LOC because you don't pay any current interst on student loans while you're still in school. THEN, when you are done school and EDULINX (student loan payment collector dudes) start wanting you to pay it back, just use your LOC to pay the whole amount off. That way, you'll pay a much smaller interest amount on your LOC (which is prime - currently 2.25%) where as the student loan interest is prime+ something.

 

that's my advice.

[anat15]

if you don't plan on having income, ie ability to pay interest, then i would suggest going with scotiabank. they don't ask for you to make interest payments, what they do is simply put that monthly amount of interest onto your total debt to them.

if at anypoint, you come into money and want to pay off the principal and some interest, you are able to do that. (for ex with a summer job).

 

I would suggest, however, that on top of a line of credit, you also get a student loan. It is a good idea to exhaust your students loans before you start using your LOC because you don't pay any current interst on student loans while you're still in school. THEN, when you are done school and EDULINX (student loan payment collector dudes) start wanting you to pay it back, just use your LOC to pay the whole amount off. That way, you'll pay a much smaller interest amount on your LOC (which is prime - currently 2.25%) where as the student loan interest is prime+ something.

 

that's my advice.

 

thanks! student loan is from government or school, right? any other options?

[anat15]

It's best to talk to the people at MD Financial. There is no need for you to take the LOC from them, they will help you anyways. They will go through your whole budget with you, and set it up so you don't borrow any more than necessary from your LOC (wherever you get it). They will do it all over the phone and it takes about an hour.

Later on, when you are a Doctor, they can set up all of your financials, insurance, etc.

You just have to be a member of the CMA to use them ($22/yr) as they are a CMA company (which is another advantage) As a member, you also get $100,000 in life insurance at no charge.

 

thank you!!

[notjk]

why don't you invest the money into a dividend paying etf?

 

such as Artista or Claymore FIE,

 

I currently have the FIE, and it pays $.04 per share monthly, and the stock price is around $7.

 

If you don't have a broker then I suggest signing up with Questrade as they will definitely have the best commissions compared to the big 4 banks.

 

So having $1980 in FIE stocks will bring approximately $135 yearly also this does not even involve any capital accumulation . ( of course the more stocks the merrier!)

 

The stock in question is pretty stable, as it is based on 100% Canadian financial, and as companies like Manulife and rbc are low this definitely makes it hopeful that the stock price might slightly go up.

 

Just a suggestion...........

[future_doc]

Investing borrowed money (loaned for the purpose of surviving as a med student) is taking on an unacceptable risk that is not necessary to do. You dont need to play the stock market and then suffer a reversal b/c events occurred over which you have no xontrol, like another melt down or any other reason. Just use the money for the intended purpose. K.IS.S. (Keep It Simple Stupid)