Independent Financial Planning Resources?

[schmitty]

If you didn't have the OSAP loans and LOC, you would have been approved for a more expensive house. If it were not for your spouse working, you would have been approved for much less than 300K or maybe not even approved at all. So, like I said, it may not make the difference between approval or not (this is more dependent on employment), but it will absolutely affect the price of house you can afford which is a huge issue for expensive cities like Toronto, Vancouver and Calgary. Use the RBC "how much house can I afford calculator." Try it once with debt, try it again without. You will see that the difference can be quite large. Cool about the LOC for downpayment thing. Maybe it is bank/branch dependent though? When I spoke to TD and RBC, they said no way.

 

You are totally right, normally, but a professional LOC is not like regular debt. It is not normal for a student who already does or will soon have zero income and huge expenses for at least 4 years to get an unconditional $250K LOC at prime with no cosigners and no assets. Like rmorelan said above, med students live in a crazy world of insanely easy to get credit. It may affect the amount you can get, but definitely not by the amount you would normally think (i.e. not in med school, if I owed $250,000 unsecured, no way I would get a mortgage for anything living on my own).

 

And that's weird about RBC, I have been told they allow this for professional LOCs. Often it depends a lot on your individual situation.

[osteon]

You are totally right, normally, but a professional LOC is not like regular debt. It is not normal for a student who already does or will soon have zero income and huge expenses for at least 4 years to get an unconditional $250K LOC at prime with no cosigners and no assets. Like rmorelan said above, med students live in a crazy world of insanely easy to get credit. It may affect the amount you can get, but definitely not by the amount you would normally think (i.e. not in med school, if I owed $250,000 unsecured, no way I would get a mortgage for anything living on my own).

 

And that's weird about RBC, I have been told they allow this for professional LOCs. Often it depends a lot on your individual situation.

 

Not regular debt? Well its not imaginary... its still an unsecured LOC that requires you to pay it back. Yes you get a low interest rate and yes you get a high LOC amount, which is unusual for most students, but thats because they approve you based on future income as a full time doc. So in actual fact, you are not being given the LOC based on student credentials. You are given it based on what your financial situation will look like once you're done school. So from that view, its actually pretty normal. They absolutely 100% factor that LOC into the equation when deciding how much to approve your mortgage for, just like any other LOC. Why? Because it is debt, and unlike the LOC, for the mortage applications, they do not care what your future income is! It is totally based on what you can afford on the day you apply. Future income may factor in if your application is borderline for approval, but its still based on current income. If they did factor in future income, every med student would be living in a million dollar house. I just tested it with the RBC calculator and with a 65K downpayment and a salary of 300K, approval is around 1.2 million. Add in a 250K LOC and that approval drops to about 600K. So will a resident be able to buy a house with a 60K salary but with 150K in loans? Yes, but it won't be for anywhere near as high as a resident who has zero debt. You said an LOC wont affect buying a house, and I'm saying it does in terms of the amount. Thats all.

[schmitty]

Not regular debt? Well its not imaginary... its still an unsecured LOC that requires you to pay it back. Yes you get a low interest rate and yes you get a high LOC amount, which is unusual for most students, but thats because they approve you based on future income as a full time doc. So in actual fact, you are not being given the LOC based on student credentials. You are given it based on what your financial situation will look like once you're done school. So from that view, its actually pretty normal. They absolutely 100% factor that LOC into the equation when deciding how much to approve your mortgage for, just like any other LOC. Why? Because it is debt, and unlike the LOC, for the mortage applications, they do not care what your future income is! It is totally based on what you can afford on the day you apply. Future income may factor in if your application is borderline for approval, but its still based on current income. If they did factor in future income, every med student would be living in a million dollar house. I just tested it with the RBC calculator and with a 65K downpayment and a salary of 300K, approval is around 1.2 million. Add in a 250K LOC and that approval drops to about 600K. So will a resident be able to buy a house with a 60K salary but with 150K in loans? Yes, but it won't be for anywhere near as high as a resident who has zero debt. You said an LOC wont affect buying a house, and I'm saying it does in terms of the amount. Thats all.

 

I agree it will probably affect it somewhat, but not nearly as much as you make it out to be. I.e. it won't affect it the same way a regular, non-professional LOC will as is assumed in the online calculators. It is much more personalized to the individual.

[rmorelan]

Not regular debt? Well its not imaginary... its still an unsecured LOC that requires you to pay it back. Yes you get a low interest rate and yes you get a high LOC amount, which is unusual for most students, but thats because they approve you based on future income as a full time doc. So in actual fact, you are not being given the LOC based on student credentials. You are given it based on what your financial situation will look like once you're done school. So from that view, its actually pretty normal. They absolutely 100% factor that LOC into the equation when deciding how much to approve your mortgage for, just like any other LOC. Why? Because it is debt, and unlike the LOC, for the mortage applications, they do not care what your future income is! It is totally based on what you can afford on the day you apply. Future income may factor in if your application is borderline for approval, but its still based on current income. If they did factor in future income, every med student would be living in a million dollar house. I just tested it with the RBC calculator and with a 65K downpayment and a salary of 300K, approval is around 1.2 million. Add in a 250K LOC and that approval drops to about 600K. So will a resident be able to buy a house with a 60K salary but with 150K in loans? Yes, but it won't be for anywhere near as high as a resident who has zero debt. You said an LOC wont affect buying a house, and I'm saying it does in terms of the amount. Thats all.

 

True enough - although I have to ask how much of a house would you want as a resident anyway - people in my class are getting property worth 350K with full LOC (not just that they have a LOC but they USED most of it up). Functionally with the limitations are you really impaired in anyway realistically?

[osteon]

True enough - although I have to ask how much of a house would you want as a resident anyway - people in my class are getting property worth 350K with full LOC (not just that they have a LOC but they USED most of it up). Functionally with the limitations are you really impaired in anyway realistically?

 

Well, functionally I'd say it depends on where you live, what you want and what you need. 350 in Winnipeg or Halifax probably goes a long way. But 350 in Toronto or Vancouver does not. So I'd say it depends where you are doing residency, where you want to live (near hospital, near groceries, near schools etc) and what your family requirements are (I.e. how many bedrooms, square footage etc). 350 will not be enough for many people depending on the city and thus be forced to keep renting. For instance in Calgary, 350 barely gets you a 2 bedroom 1000 sqft house in a decent suburb with schools with an hour long commute to hospitals, which for some people with families may not work. Its probably even worse in Toronto and Vancouver.

[schmitty]

Well, functionally I'd say it depends on where you live, what you want and what you need. 350 in Winnipeg or Halifax probably goes a long way. But 350 in Toronto or Vancouver does not. So I'd say it depends where you are doing residency, where you want to live (near hospital, near groceries, near schools etc) and what your family requirements are (I.e. how many bedrooms, square footage etc). 350 will not be enough for many people depending on the city and thus be forced to keep renting. For instance in Calgary, 350 barely gets you a 2 bedroom 1000 sqft house in a decent suburb with schools with an hour long commute to hospitals, which for some people with families may not work. Its probably even worse in Toronto and Vancouver.

 

Well 350K will get you a nice 2 or 3 brdm home in a suburb of Toronto (like brampton), or a very nice 1-bedroom condo right downtown. My condo was around $250K downtown toronto because it was old and we did all the work ourselves. Now they sell for around $320K, which still isn't bad given it's around 800 sq ft (large for downtown). Really though, you expect to get more as a medical student, even with a spouse? TO get a mortgage of $300,000 normally, you would have to make roughly $80-100K household income (depends on many factors, obviously), so the fact that you can probably get this typ eof mortgage as a medical student should tell you that lenders don't see MD students as normal clients (even for mortgages).

[osteon]

Well 350K will get you a nice 2 or 3 brdm home in a suburb of Toronto (like brampton), or a very nice 1-bedroom condo right downtown. My condo was around $250K downtown toronto because it was old and we did all the worourselves. Now they sell for around $320K, which still isn't bad given it's around 800 sq ft (large for downtown). Really though, you expect to get more as a medical student, even with a spouse? TO get a mortgage of $300,000 normally, you would have to make roughly $80-100K household income (depends on many factors, obviously), so the fact that you can probably get this typ eof mortgage as a medical student should tell you that lenders don't see MD students as normal clients (even for mortgages).

 

You are not reading what I'm saying. You originally said that "LOCs have no influence on mortages." All I'm saying that yes it does in that you won't get approved for as high of an amount as you would without one. I dont think you can argue that statement. I don't care if med students get special treatment or not, the fact is that it is debt and thus will have some impact. Who knows how much of an impact, it's probably dependent on the individual circumstance. Whether that difference matters or not to someone is not for you to decide. A 350K one bedroom condo may work for you, but it may not for someone else. So with an LOC, can one expect more than a 350K mortgage? Probably not. But if you want/need a house that gives more than what 350K would give, then LOC is a factor and either you'll have to rent or find a way to boost your approval amount.

[schmitty]

You are not reading what I'm saying. You originally said that "LOCs have no influence on mortages." All I'm saying that yes it does in that you won't get approved for as high of an amount as you would without one. I dont think you can argue that statement. I don't care if med students get special treatment or not, the fact is that it is debt and thus will have some impact. Who knows how much of an impact, it's probably dependent on the individual circumstance. Whether that difference matters or not to someone is not for you to decide. A 350K one bedroom condo may work for you, but it may not for someone else. So with an LOC, can one expect more than a 350K mortgage? Probably not. But if you want/need a house that gives more than what 350K would give, then LOC is a factor and either you'll have to rent or find a way to boost your approval amount.

 

I completely see what you are saying, but I am just saying that you wouldn't expect to get more than $350,000 even without the LOC while making no money, so you are underestimating the special treatment professional students get with regards to credit IMO, including mortgages.

[rmorelan]

I completely see what you are saying, but I am just saying that you wouldn't expect to get more than $350,000 even without the LOC while making no money, so you are underestimating the special treatment professional students get with regards to credit IMO, including mortgages.

 

That was actually my point as well - our reps here basically arrange it so the LOC has basically no impact. If you have an income of 50K a year etc you would be lucky to get a 300K mortgage at the lowest rate anyone could get.

 

Those in our class without an LOC or a very low use of one were not able to get a larger mortgage than those with a higher LOC.

 

At some point you would think a high LOC must impact you somehow - I am sure it will. It is really interesting how sheltered we are in the system. Once you are medical student you don't really live in the "real world" anymore.

[Let'sGo1990]

I was researching on this topic and came across this thread. Some fantastic advice to be found here. 

gah long post, sorry. but I find this stuff interesting

ok so at this point your loan is 200K, you have 400K in the corp and you say hey, let's pay off that loan! You might think you just take 200K out of the corp and throw it at the loan and bam, done.

Trouble is you cannot. As soon as you take that 200K out it then is taxable. Worse you earned already 100K so you are in the highest tax bracket, with a marginal rate now of around 50% (if you take it out as dividend it isn't quite that much but point is expect big chunk to be removed that tax year. BIG MONEY to the government). At that marginal rate to get 200K to pay off the loan you have to withdraw around 400K. You give about 200K to the government (we all thank you for that) and you give 200K to the bank (they thank you for that). All done, congrats, you are loan free.

Now the big question was that smart? The answer is probably not.

Instead some docs rationally chose to delay things. The reason is that 400K in the corporation could simply continue to be invested and grow. Probably grow faster even than the rate of the student loan. Maybe say in ten years you could double it (that is an average of 7ish percent a year, which is below stock market averages). Now you have 800K and your student loan has grown a low interest rate per year so would be say 300K. Point is you could repeat this now - take out 600K, 1/2 to the government, 1/2 to the bank EXCEPT you still have 200K left in the corporation.

In fact ideally you would really never pay off the loan if you could. Just let your investments grow faster than the interest on the loan for pretty much forever. However banks are not that kind - they force you into a payment plan, where you have to pay it back in 10-15 years. Throughout that time you may curse the loan, be annoyed by the loan, just want to reach out and smash the loan BUT in reality that probably just isn't logical. It would cost you money do to so.

Point is don't look at someone paying off the loan in 10 years as being foolish. They may actually be doing exactly the right thing.

 

So what is the most effective way to extract that pool of accumulating money in your corporation once you retire? Are you pretty much forced to withdraw it and take the hit on the full tax rate? 

 

Also, I'm not sure I'm understanding things correctly. That 400k in the corporation that is invested is the amount leftover after corporate tax has been applied, right? Assuming this is the case, and it is invested and grows to 800k, when you take 600k of that out and are taxed at 300k, aren't you essentially being taxed twice on a portion of that amount? 

 

Similarly, if you hypothetically did take $$$ out of your corporation (from a previous year) to pay for your loans, wouldn't that also be taxed twice? Once as corporate, and then again as personal income?

 

Hope that's not too confusing . My issue with understanding this is likely related to the fact that I don't know when exactly corporate tax is applied.

 

edit: and isn't corporate tax 15 percent federal and 11.5 percent provincial (for Ontario)? so it comes out to 26.5 which still eats a large chunk of your money.

[bloh]

There is some misinformation in this thread so I wish to clarify some things:

 

 Yes, residents do get advantages when it comes to taking out mortgages that other people do not. But it does come with caveats. The rules don't allow the banks to do this if it is insured by government subsidized entity, CMHC or even the privae one Genworth. If you do not know, every mortgage has to be insured and its just less than 3% of the total loan amount. So if you are borrowing 300k, your insurance will be 3% of that. Most people just add it to their mortgage so they "do not notice it". Every loan with less than 20% downpayment HAS to have this insurance by law.

 

The way banks work around this is (for us) is they ask you to pay that 20% downpayment to avoid the insurance which allows them to bypass laws. At that point, the bank itself is insuring your mortgage. They wouldn't do this for joe the Plumber but they are willing to take the risk on Dr. SoonToBeWealthy. Furthemore, most banks will allow you to put 50-100% of the downpayment on the line of credit which again bypassess clear laws. So in essence, your borrowing capabilities go by laws that don't quite follow the market.

 

That's just to get your foot in the door. With a 150,000 LOC and a 50k salary, even if you had the downpayment you still wouldn't be able to buy anything. Banks decide your maximum borrowing limit by taking in your monthly costs and monthly income into account. The last step banks do in this regard is they relax these ratios. They realize that all of that debt doesn't need to be paid right now and that your income will soon increase dramatically.  Someone with 150k in debt can get easily get a loan of 350-400k (with a salary of 50k). If you need to borrow more, then I'd say you are making some very bad financial decisions