Lines of Credit for Medical Students (Scotia is the best option)

[silverjelly]

I'm very confused when it comes to these LOCs.

 

What is supposed to happen to them once the LOC enters repayment?

 

For example, throughout medical school and residency it stays at prime interest, and that continues for a 1 year grace period after the completion of residency.

 

Once that 1 year grace period is up, what happens? National Bank (who I am with through MD management) told me that depending on credit rating it will be either converted to line of credit at prime + 1%, 50/50 LOC/loan, or 100% loan.

 

RBC was just straight up telling me it would become a loan.

 

Is it actually supposed to be converted to a LOC at prime? Please let me know as I'm trying to negotiate and have a limited time frame to doing so. Thanks.

[rmorelan]

First off it really won't matter much at this stage what they do with it post - if you find that another bank has better terms or an arrangement at that point then you can simply switch banks. Competition is your best friend in all of this - that is in the end the main thing that keeps all the banks in check.

 

No bank will guarantee you an interest rate outside of the grace period - it is only the competition between banks that will keep it low. You must not allow at any point here loyalty to a bank to blind you to the possibility of moving. I still check every single year to make sure that my arrangement is optimal and will continue to do every year at least. It is good habit to develop I think. If it is better somewhere else you approach the bank and present them your findings - they either match it or you walk. It's just that simple.

 

So in a nut shell due to competition the repayment interest rate is very low - and if another bank out there is lower you can simply switch - there is that competition effect again.

 

from what I have found out so far generally speaking once you are in repayment the LOC converts to a loan EFFECTIVELY at most places - which simply means that the bank will expect you to make payments not just of interest (which you will be doing all along, even if you just take more money out of the LOC to do it) but you will be required to repay principle as well. There will be a term basically to pay it off. Since presumably you will be fully working earning doctor by that point there won't be much issue with that.

 

Whether it is a loan or LOC etc, etc actually doesn't matter much as you still secure a profession LOC for at the very least equal to the total amount of LOC minus the loan amount (you total credit is still 250K as an example even if part of it is loan and part of it is LOC - pay off the loan and you can increase your LOC. The total credit available didn't change).

 

This all of course shouldn't be interpreted to suggest you shouldn't pay off the loan etc at some point - although I did post a bit while back about the problems with taxation if you do it too quickly (ie it costs you a lot in tax so do it carefully).

 

I'm very confused when it comes to these LOCs.

 

What is supposed to happen to them once the LOC enters repayment?

 

For example, throughout medical school and residency it stays at prime interest, and that continues for a 1 year grace period after the completion of residency.

 

Once that 1 year grace period is up, what happens? National Bank (who I am with through MD management) told me that depending on credit rating it will be either converted to line of credit at prime + 1%, 50/50 LOC/loan, or 100% loan.

 

RBC was just straight up telling me it would become a loan.

 

Is it actually supposed to be converted to a LOC at prime? Please let me know as I'm trying to negotiate and have a limited time frame to doing so. Thanks.

[leviathan]

Costs a lot in tax? Are you referring to the tax deductions on federal student loans, or something else? If the tax deductions, I figured the tax savings I'd get were less than the savings in interest at Prime vs. prime+2% floating that the national student loan offers. Can you link to which post you're talking about. Thanks.

[rmorelan]

Costs a lot in tax? Are you referring to the tax deductions on federal student loans, or something else? If the tax deductions, I figured the tax savings I'd get were less than the savings in interest at Prime vs. prime+2% floating that the national student loan offers. Can you link to which post you're talking about. Thanks.

 

I will try to find it - it isn't the student loan tax - it is the INCOME TAX you have to pay when you take money out of your corporation to pay off the loan. If you are a doctor on pure salary (and you kind of are missing out on a lot of powerful tax advantages that way) then it doesn't matter. However with the corporation you have advantages in holding the money internally longer in many cases. The effect is more important right now because the interest rates are so low on LOCs and the income tax rates are still at the same relatively high levels.

 

This stuff isn't something to worry too much about - either you learn it or you get someone to do if for you. Bottom line is there is a business side to medicine that you should look into to properly do things.

[leviathan]

I will try to find it - it isn't the student loan tax - it is the INCOME TAX you have to pay when you take money out of your corporation to pay off the loan. If you are a doctor on pure salary (and you kind of are missing out on a lot of powerful tax advantages that way) then it doesn't matter. However with the corporation you have advantages in holding the money internally longer in many cases. The effect is more important right now because the interest rates are so low on LOCs and the income tax rates are still at the same relatively high levels.

 

This stuff isn't something to worry too much about - either you learn it or you get someone to do if for you. Bottom line is there is a business side to medicine that you should look into to properly do things.

Gotcha. I'll look into that when I'm making an actual income haha. For now I'm just trying to pay down my LOC as much as possible on a resident salary.

[rmorelan]

Gotcha. I'll look into that when I'm making an actual income haha. For now I'm just trying to pay down my LOC as much as possible on a resident salary.

 

ha well as a resident you are right - there is no particular reason financially not to pay it off. Some will argue that your future income is relatively high and thus you can defer (some logic there, even using economic style concepts). Others say don't of course starve but saving is a priority. Cash flow in particular is a concern - it is great to say you will be able to pay something off later but that doesn't help you if you hit a hard limit to your LOC and income when something comes up now.

 

Most will say if you are at least not going into any further debit (I guess a middle position) you are doing pretty good. The interest payments are not insignificant of course.

[hjk]

Hi guys.

when you guys got your LOC approved was your letter of acceptance and a good credit score all you needed?

my bank is asking for my Personal Notice of Assessments. is this normal? I dont want to unnecessarily share my private information with the bank if I dont have to.

Thanks!

[rmorelan]

Hi guys.

when you guys got your LOC approved was your letter of acceptance and a good credit score all you needed?

my bank is asking for my Personal Notice of Assessments. is this normal? I dont want to unnecessarily share my private information with the bank if I dont have to.

Thanks!

 

I didn't need that for sure, although this was 3 years ago. What bank is asking for that?

[hjk]

this is TD

[Arztin]

Does TD considers residency as full-time studies? My agent at RBC yesterday said that TD doesn't. I don't know if it is true or not.

[orangebubbles]

Hi guys.

when you guys got your LOC approved was your letter of acceptance and a good credit score all you needed?

my bank is asking for my Personal Notice of Assessments. is this normal? I dont want to unnecessarily share my private information with the bank if I dont have to.

Thanks!

 

I've decided to go through TD and I wasn't required to fill out a Personal Notice of Assessments. I just needed proof of enrolment and was asked to fill out a student budget estimating my spendings over the next few years to determine the amount of my LOC. This budget part was pointless though since my estimated budget was 100K under their max and I was still given the option of applying for the full amount.

 

I should note though that TD is my current bank...not sure if this made a difference in the application process with regards to filling in an assessment form.

 

Arztin: TD considers residency as full time studies and doesn't require repayment until 1 year after residency like most banks

[rmorelan]

I've decided to go through TD and I wasn't required to fill out a Personal Notice of Assessments. I just needed proof of enrolment and was asked to fill out a student budget estimating my spendings over the next few years to determine the amount of my LOC. This budget part was pointless though since my estimated budget was 100K under their max and I was still given the option of applying for the full amount.

 

I should note though that TD is my current bank...not sure if this made a difference in the application process with regards to filling in an assessment form.

 

Arztin: TD considers residency as full time studies and doesn't require repayment until 1 year after residency like most banks

 

most of the major banks don't require this Of course you have to pay the interest as you go along but that is just paid out of the LOC one way or the other.

[BigM]

I've decided to go through TD and I wasn't required to fill out a Personal Notice of Assessments. I just needed proof of enrolment and was asked to fill out a student budget estimating my spendings over the next few years to determine the amount of my LOC. This budget part was pointless though since my estimated budget was 100K under their max and I was still given the option of applying for the full amount.

 

I should note though that TD is my current bank...not sure if this made a difference in the application process with regards to filling in an assessment form.

 

Arztin: TD considers residency as full time studies and doesn't require repayment until 1 year after residency like most banks

 

When I tried to switch my LOC over to TD they made me complete the budget and then they were only willing to approve me for the amount that I could show I needed based on the budget. They wouldn't even allow me to budget expenses like getting married since it wasn't related to the cost of my education. Needless to say, I did not switch to TD and I would caution medical students considering joining them. I can only imagine they are limited to a very small portion of the medical student market as they showed very little interest in staying competitive with the other banks.

[orangebubbles]

When I tried to switch my LOC over to TD they made me complete the budget and then they were only willing to approve me for the amount that I could show I needed based on the budget. They wouldn't even allow me to budget expenses like getting married since it wasn't related to the cost of my education. Needless to say, I did not switch to TD and I would caution medical students considering joining them. I can only imagine they are limited to a very small portion of the medical student market as they showed very little interest in staying competitive with the other banks.

 

Sorry to hear about your experience - I had the complete opposite experience with TD thus far despite having heard similar stories.

 

I was told to budget in all types of things unrelated to my cost of education including wedding expenses, vacations, car expenses, etc. Even with all of these additional expenses, I still didn't reach the full amount offered by TD and my advisor gave me the option of applying for the full amount in case other unexpected costs arose in the future (rather than re-applying for a higher limit in the future).

 

I also mentioned some of the perks that other banks offered (ie. no annual fee on a travel-based credit card for the duration of my education) and I was given this perk along with a few other things (free cheques, etc).

 

I guess it depends upon the advisor, but I have nothing but great things to say about the way TD has handled my accounting thus far .

[Arztin]

At CIBC and RBC they didn't offer me anything else. At National, they said I could have the Platinum Mastercard for free for 2 years, and it would be 125$ after 2 years. Does anyone know if that`s good? Does anyone have any sort of experience with that (or any comments?)

 

It seems like there simply aren't too many Scotia branches in Québec.

 

And banks seem to trash talk each other lol. The National bank agent said that at RBC, the rate would be prime rate +1, which is totally false. And the RBC agent says that at TD, they don't consider residency as full time studies. The RBC guy didn't know what is a fellowship. The CIBC agent was a total idiot. They just don't seem so trustworthy lol.

[orangebubbles]

And banks seem to trash talk each other lol.

 

Couldn't agree more!!

[BoyInTheBubble]

If the last few posters aren't doing so already, I would make sure you are dealing with one of the bank 'specialists' (for lack of a better word) on the Medical student/resident line of credit.

 

You shouldn't have to explain much. Other than providing proof that you are enrolled, it should be very straightforward.

 

They are either dumb or playing with you if they don't know what the other banks are offering. They know and they follow each other's lead (in your favour!).

 

I was a customer of TD pre-med, and left because they wanted those budgets and said the money had to be approved, and blahblah and some other details I didn't care for. RBC gave me access to the whole LoC plus some free banking, credit card etc in like 24 hours.

 

It seems Scotiabank has the best deal going (275k?!!). I wouldn't settle for anything less. In fact, if I need the money, I'd switch over to Scotia. I don't but it's nice to know you can use the line of credit as you please (interviews, exams, travel, car, house, whatever...)

[BoyInTheBubble]

I will try to find it - it isn't the student loan tax - it is the INCOME TAX you have to pay when you take money out of your corporation to pay off the loan. If you are a doctor on pure salary (and you kind of are missing out on a lot of powerful tax advantages that way) then it doesn't matter. However with the corporation you have advantages in holding the money internally longer in many cases. The effect is more important right now because the interest rates are so low on LOCs and the income tax rates are still at the same relatively high levels.

 

This stuff isn't something to worry too much about - either you learn it or you get someone to do if for you. Bottom line is there is a business side to medicine that you should look into to properly do things.

 

You can pay yourself dividends, and all that to pay it back at a lesser rate than purely income. You can take a loan from your corporation to pay down the LoC then over time pay down the loan. If you have any money in investments/rrsp/tfsa's you can write off the total value against the interest paid on the line of credit.

 

Lots of ways for accountants to finagle and save a few bucks.

[mnbv]

Right now I have the Scotia AMEX (first year's fee waived) and Scotia Passport Visa (no fee - always waived on my professional LOC). You can combine the points between both cards for travel so it works well.

 

Hey leviathan,

 

If you have both the Gold Amex and Scotiagold Passport, do the points go into the exact same "pool" on the scotiarewards.com interface, or is there some other way of combining them? I ask because the programs have slightly different other perks (access to different discounts, etc.), so I thought they might give you 2 separate logins for the 2 cards.

 

i.e. with the Scotiagold Passport Visa, you get a 5% discount on flights/packages booked through their travel agency service, but with the Amex, there is no such discount. If you have both cards, then can you effectively earn 4x the points on gas/groceries/entertainment with the Amex, log in to a single interface, use those points to lower the cost of a flight, then charge the remainder to the Visa, and still get the 5% discount?

[rmorelan]

At CIBC and RBC they didn't offer me anything else. At National, they said I could have the Platinum Mastercard for free for 2 years, and it would be 125$ after 2 years. Does anyone know if that`s good? Does anyone have any sort of experience with that (or any comments?)

 

It seems like there simply aren't too many Scotia branches in Québec.

 

And banks seem to trash talk each other lol. The National bank agent said that at RBC, the rate would be prime rate +1, which is totally false. And the RBC agent says that at TD, they don't consider residency as full time studies. The RBC guy didn't know what is a fellowship. The CIBC agent was a total idiot. They just don't seem so trustworthy lol.

 

ha they do

 

although residency isn't full time studies - do you mean that the loan would have gone into repayment (ie principle had to be paid back?) OSAP also doesn't consider it full time studies, nor does the federal government.

[rmorelan]

You can pay yourself dividends, and all that to pay it back at a lesser rate than purely income. You can take a loan from your corporation to pay down the LoC then over time pay down the loan. If you have any money in investments/rrsp/tfsa's you can write off the total value against the interest paid on the line of credit.

 

Lots of ways for accountants to finagle and save a few bucks.

 

you certainly can - although there is a government policy that the income tax rate should be approximately the same as the corporate tax + dividend tax, ie the government doesn't want there to be difference but there are often out sync changes as adjusting the rates is a pain. Some years income would be better, some years dividends are. One of the reasons you need an on the ball accountant in the end

 

one some ways it is like learning all the tricks of the various schools to get into med school. I think the "optimize the solution" part of my engineer/economist brain likes studying both problems because they are similar in that way

[leviathan]

Hey leviathan,

 

If you have both the Gold Amex and Scotiagold Passport, do the points go into the exact same "pool" on the scotiarewards.com interface, or is there some other way of combining them? I ask because the programs have slightly different other perks (access to different discounts, etc.), so I thought they might give you 2 separate logins for the 2 cards.

 

i.e. with the Scotiagold Passport Visa, you get a 5% discount on flights/packages booked through their travel agency service, but with the Amex, there is no such discount. If you have both cards, then can you effectively earn 4x the points on gas/groceries/entertainment with the Amex, log in to a single interface, use those points to lower the cost of a flight, then charge the remainder to the Visa, and still get the 5% discount?

You got it. When you go into scotiarewards.com both the Passport Visa and AMEX both appear in a dropdown box. You can transfer points from one card to the other with a few clicks of the mouse. As you said, you can combine both points on your Visa, apply those to the flight and continue getting the 5% flight discount for the remaining price of the flight. Pretty good deal overall, as long as one of the two cards has the annual fee waived. I did get 15,000 in bonus points for getting the AMEX and the first year's fee is waived. I may cancel the card at the year end because I'm not spending as much on gas/groceries/restaurants as I would have liked with the AMEX, and might not even break even with the annual fee.

[mnbv]

You got it. When you go into scotiarewards.com both the Passport Visa and AMEX both appear in a dropdown box. You can transfer points from one card to the other with a few clicks of the mouse. As you said, you can combine both points on your Visa, apply those to the flight and continue getting the 5% flight discount for the remaining price of the flight. Pretty good deal overall, as long as one of the two cards has the annual fee waived. I did get 15,000 in bonus points for getting the AMEX and the first year's fee is waived.

 

Thanks, that is pretty awesome!

[leviathan]

Thanks, that is pretty awesome!

Yep! But you have to spend at least $2500 per year in gas, groceries, restaurants to break even with the card, before you start making any money. Assuming you have the 1% back card with the waived annual fee for the rest of your purchases, that is.

[Arztin]

ha they do

 

although residency isn't full time studies - do you mean that the loan would have gone into repayment (ie principle had to be paid back?) OSAP also doesn't consider it full time studies, nor does the federal government.

 

That`s what the National Bank agent claimed. It obviously doesn`t make sense. I don`t know what`s OSAP.