Is it possible to get the 150k line of credit as a lump sum?

[xorht]

Hey guys,

 

3 questions:

 

1) Is it possible to get the 150k line of credit as a lump sum?

2) If so, which banks allow this?

3) How early can I apply for my LOC? As soon as I received my offer of aceptance?

[justletmein]

Yes, at RBC there are no restrictions on how much you can use (not in my case, anyway).

 

BUT, why would you need 150K lump sum? It would be pretty dumb to pay interest on that much money if it weren't for something absolutely necessary.

 

You can apply for the LOC once you have proof that you have been accepted to a canadian medical school. I did not have to show proof of registration to get access, but I did once I finished first year.

[AdamP]

please tell me you're letting it ride on Red

[xorht]

Thanks.

 

I need it in lump sum because I will be buying a property..Interest rate is at 2.25% right now. I know it will fluctuate, but I doubt it will go up beyond 6% (which is what the interest rate on a mortgage is)

[xorht]

Also, how come the RBC website states prime +1? Did you need to negotiate for prime?

[Laika]

Thanks.

 

I need it in lump sum because I will be buying a property..Interest rate is at 2.25% right now. I know it will fluctuate, but I doubt it will go up beyond 6% (which is what the interest rate on a mortgage is)

 

http://www.tdcanadatrust.com/mortgages/numbers.jsp

 

Variable rate mortgage is prime now (i.e., 2.25%, the same as the LOC).

 

Besides, do you really want to leverage yourself this much when (a) you won't have a significant income for 6-9 years and ( housing prices could decline significantly in the coming years, leaving you with negative equity in your property?

[justletmein]

The rate is prime for medical students. You should not have to negotiate.

 

Also, buying a property with an LOC is risky business. I would talk to a few people in the financial sector before making that choice.

 

Many people completely underestimate the hidden costs and risks of buying a home.

[A-Stark]

Are you planning to use the LOC as a downpayment? I don't think that's allowed...

[xorht]

Thanks for the input guys.

 

Mortgage rate will increase if prime increases, so I think the professional LOC is a better way to go. There's a reason they ofer such a great deal for med students..because they know we'll pay it off.

 

In regards to getting property, I agree that there's a chance the price of property will go down. However, I plan on owning it long term and renting it out until I start making money. I calculated the total cost per month (interest on LOC, condo fees, annual tax) and it comes out to less than how much I'd charge for rent (based on similar listings on kijiji).

[xorht]

A-stark:

 

I won't have a down payment since I won't be taking out a mortgage. I will be able to buy the property in its entirety if I can take out the LOC as a lump sum.

[Laika]

In regards to getting property, I agree that there's a chance the price of property will go down. However, I plan on owning it long term and renting it out until I start making money. I calculated the total cost per month (interest on LOC, condo fees, annual tax) and it comes out to less than how much I'd charge for rent (based on similar listings on kijiji).

 

Fair enough, but how high does prime need to be before it's not worth it? And do you have another source of cash to pay for living expenses, school, and the difference b/w the cost and income if interest rates rise significantly?

[A-Stark]

Fair enough, but how high does prime need to be before it's not worth it? And do you have another source of cash to pay for living expenses, school, and the difference b/w the cost and income if interest rates rise significantly?

 

I was wondering the same thing. This idea seems ill-conceived, particularly since - depending on the location - $150k will not get you much of anything.

[Ollie]

Mortgage rate will increase if prime increases, so I think the professional LOC is a better way to go. There's a reason they ofer such a great deal for med students..because they know we'll pay it off.

Right now you can get a variable rate mortgage at prime (2.25%). The interest rate on the LOC is also variable at prime (2.25%). They are exactly the same thing and will increase when prime increases. I'm not really sure why you want to use your LOC as opposed to a mortgage that you can amortize over 25 years. In the long run financing with your LOC will end up costing more as you will be accruing interest over the next at least 7 years without paying off any of the principle as you would with a mortgage. Presumably you must have other sources of money if you plan on paying the costs of owning a property.

[Laika]

Right now you can get a variable rate mortgage at prime (2.25%). The interest rate on the LOC is also variable at prime (2.25%). They are exactly the same thing and will increase when prime increases. I'm not really sure why you want to use your LOC as opposed to a mortgage that you can amortize over 25 years.

 

I don't approve of the OP's plan, but one advantage is that the LOC is interest only for med school (+ one yr?), while the mortgage would involve principal payments as well. So the LOC payments would be less each month for the same loan amount.

[Ollie]

I don't approve of the OP's plan, but one advantage is that the LOC is interest only for med school (+ one yr?), while the mortgage would involve principal payments as well. So the LOC payments would be less each month for the same loan amount.

 

Yeah you would be paying less up front but in the long run it will cost way more since you will be paying interest on the full amount rather than regularly paying down the principle monthly. (I edited my post above to add this)

[TheEggman]

If you're going to be renting it out until you make money you'd be better off getting a mortgage and paying the monthly payment with the rental income, that way your rental income is going directly to the principle on the house (minus the interest on the mortgage). Then you still have the LOC to help cover school and other costs. You can always use the LOC for a down payment, but be wary of buying property entirely on borrowed money.

[HBP]

If you have another source of income (employment, grants, scholarships) during your studies, paying off the property with the prime LOC is a good option.

 

With a mortgage 25-year amortization, the first few years of payments are entirely interest (you only start making significant portions of principle payments later, thus if you have to sell in the first 5-6 years, you're not really taking any money off your mortgage). If you're making regular payments on your LOC, the entire balance is going down, so you're paying less interest as you make more payments. Overall you'll save money, and if you have to sell, more chance of capital gains.

 

But you can't do this as a student if you're not making payments on the LOC (interest will keep compounding and will cost you more during your residency during the repayment amortization). Also, if you don't have a source of income, you're going to be stretched thin on tuition, living expenses, etc.

 

BTW, a fixed mortgage rate right now can be had for around 4%? Did you get assessed at 6%?

[xorht]

Hey thanks for everybody's advice!

 

Based on the amount of rent collected by similar condos in the same building, I would be able to pay off not only all of the monthly interest/condo fees/tax, I would have about $400/month to spare for paying off the principal. Thus, interest will not be accruing as I will be able to pay off monthly interest + pay down the principal (solely on rental income).

 

In terms of academic expences, I have savings that will cover my tuition etc.

 

Knowing this, do you guys still think it is a bad idea to use the LOC to pay for a condo? The reason I think this is a good idea is because I cannot get a mortgage approved for less than 6% amortized over 25 years. Even then, my monthly payments would be too high for rental income to cover all the costs. Thus, by using solely my LOC (plus some savings), I would be able to pay for the condo up front at only prime. And once I have tenants, I will be able to pay down the principal at a rate of $400/month.

[HBP]

Sounds like a good plan.

 

It seems everyone expected you would be living in the property, not renting it out.

[A-Stark]

Well, wait, what kind of margin will this provide to you? If you're not using your LOC at all for living/school costs, will you have any net return from this plan? If you used your LOC to finance your own living expenses, you'd end up in a lot less debt overall, and not have to take on the risk of having a tenant.

[xorht]

Hey guys, sorry I need to be more clear I think!

 

I won't have living expenses as I will still be living at home with my parents. This property will used as a long term investment.

 

After reading what everybody was saying, I realized there's probably a better way to do this: I can put down a down payment with cash savings and then take out a small mortgage using my parents as co-signer. From there, I will find tenants to pay for the majority of each month's payments (let's say $1000 out of $1400 each month). Since rent would not be high enough to completely cover the mortgage/condo fees/tax, I can use my LOC to pay the difference ($400/month) as well as during times when the condo is vacant.

 

And so, I'll only use ~$20k of my LOC by the time I graduate, and this will free up the rest of my LOC in case of emergencies. Once I enter residency, I'll be able to pay down the mortgage (in addition to the small amount of debt incurred by the LOC) to the point where rental income > monthly payments; then hopefully that condo will be self-sustaining without the LOC. Thoughts?

[UTPEOPLE]

Hey guys, sorry I need to be more clear I think!

 

I won't have living expenses as I will still be living at home with my parents. This property will used as a long term investment.

 

After reading what everybody was saying, I realized there's probably a better way to do this: I can put down a down payment with cash savings and then take out a small mortgage using my parents as co-signer. From there, I will find tenants to pay for the majority of each month's payments (let's say $1000 out of $1400 each month). Since rent would not be high enough to completely cover the mortgage/condo fees/tax, I can use my LOC to pay the difference ($400/month) as well as during times when the condo is vacant.

 

And so, I'll only use ~$20k of my LOC by the time I graduate, and this will free up the rest of my LOC in case of emergencies. Once I enter residency, I'll be able to pay down the mortgage (in addition to the small amount of debt incurred by the LOC) to the point where rental income > monthly payments; then hopefully that condo will be self-sustaining without the LOC. Thoughts?

 

wow... where are you going to school? 150k for a condo is unheard of in toronto (a decent one at least)

[xorht]

wow... where are you going to school? 150k for a condo is unheard of in toronto (a decent one at least)

 

Thank god I don't live in T. A decent condo here can be had for 120-350k. There are obviously the extremes as well (as cheap as 60k and as expensive as 1 mil). According to a local real estate blog, the average price of a condo is around 300-350k here, but that's for a single family 2-3 bedroom condo with decent square footage. I'm focussing more on relatively small downtown bachelor suites.

[HBP]

Hey guys, sorry I need to be more clear I think!

 

I won't have living expenses as I will still be living at home with my parents. This property will used as a long term investment.

 

After reading what everybody was saying, I realized there's probably a better way to do this: I can put down a down payment with cash savings and then take out a small mortgage using my parents as co-signer. From there, I will find tenants to pay for the majority of each month's payments (let's say $1000 out of $1400 each month). Since rent would not be high enough to completely cover the mortgage/condo fees/tax, I can use my LOC to pay the difference ($400/month) as well as during times when the condo is vacant.

 

And so, I'll only use ~$20k of my LOC by the time I graduate, and this will free up the rest of my LOC in case of emergencies. Once I enter residency, I'll be able to pay down the mortgage (in addition to the small amount of debt incurred by the LOC) to the point where rental income > monthly payments; then hopefully that condo will be self-sustaining without the LOC. Thoughts?

 

IMO your first plan is better. It's the exact same, except with the mortgage, you admit to paying off a loan with a loan for $400 a month. However, if you need your LOC to be free, you don't really have this option.

[xorht]

IMO your first plan is better. It's the exact same, except with the mortgage, you admit to paying off a loan with a loan for $400 a month. However, if you need your LOC to be free, you don't really have this option.

 

I looked more carefully at the numbers and I would actually only have a profit of ~$200-250 (sorry for the miscalculation) each month; this is also provided I would have a vacancy rate of 0%. And even if I can pay down the principal by $200 a month, I would still have ~140k debt by the time I graduate which would need to be repayed over a small period of time.

 

As well, you guys are right in that I would be cutting it tight if I spent my entire LOC but later needed it for unforeseen expenses. If I take out the entire LOC and buy the condo up front, I would be left with very little to cover the cost of vacancy or repairs. But if I take out an additional mortgage, I'll have a lot more to work with.

 

In addition, I was reading another thread and most ammortization periods for the LOCs are around 10 years, so my payments would be quite high right off the batt one year out of residency. And if I need to do residency elsewhere, I'd need to rent a place myself and that may be tough if my monthly payments on the LOC are > ~3000.