LOC question

[fornix]

Hey everyone,

 

 

I went to TD to discuss LOC and the rep told me its interest only until residency + 12 months. So I would have to make interest payments while I am in medical school and in residency. He said we can arrange for the interest payments to be taken directly from my LOC. He also said that it was same at all banks. However, I was under the impression that , interest accumulates but you dont have to pay it until u finish residency. Can someone clarify this to me ? Thanks.

[Mithril]

TD and most other banks require at least interest-only payments while in school and up to a year after residency. The only banks that do not require payments at all during med school and up to a year after residency are Scotia Bank and National Bank through MD Management. However, it's in your best interest (get it?) to have interest-only payments during school and residency because it keeps your total debt level down by not having to pay interest upon interest. Plus the monthly interest-only payments are relatively cheap assuming you are only paying for tuition and living expenses and not buying something crazy.

[fornix]

However, it's in your best interest (get it?) to have interest-only payments during school and residency because it keeps your total debt level down by not having to pay interest upon interest.

 

How is it better to have interest only payments if they are coming from my LOC itself ? This way I will have less LOC capital available since it is being used to pay interest. I am not really experienced with financial matters, and it is confusing.

[NLengr]

Every bank will require you to make interest payments during medical school and residency. You don't need to pay down the principle until after residency.

 

As to where you get the interest payments from:

 

Med School: Most people just take it off the line of credit, then put if back on as a payment. Scotia will automatically do this for you, while RBC makes you manually remove the money and put it back on.

 

Residency: Hopefully, you can pay the interest payments from your salary. Most people try to avoid spending LOC money during residency.

 

The most important thing to know is that once you get to your limit (200k or whatever), you have to keep paying interest payments, but you won't be able to draw off the LOC for that. Simply put, you get 200k total, no more.

[leviathan]

I think Scotia has increased the limit to 240k now, but honestly I can't see how any average Canadian med student would need even 200k with tuition so cheap. People with families or prior debt before med school changes the story though.

[rmorelan]

I think Scotia has increased the limit to 240k now, but honestly I can't see how any average Canadian med student would need even 200k with tuition so cheap. People with families or prior debt before med school changes the story though.

 

For meds it is still 200K but for dents it is 250K. Although know scotia will allow you to withdraw another 15K a year during residency to a max of 75K.

 

some of the terminology is a bit confusing to me in this thread - could just be me of course

 

As NLengr said on any LOC (not just professional ones, really any) you owe interest each month. Of course as med student it is pretty hard to pay off anything during school so you just take out more money from the LOC to pay the interest. This causes your LOC to slowly deleted over time. You don't have to run out to get a job to pay interest off each money is my point.

 

 

Now you can pay off the interest and principal at any time if you are able to - some people in residency certainly pay off more than just the interest (you are paid effectively 60K+ a year in terms of standard income, and your max interest at today's rates would be only 6Kish a year. So you could start if you wanted to to pay things off). If you live like a moderately poor student still (not sure why you would do that though) you could in theory pay off over half the average loan during a 5 year residency.