Am I crazy to leverage my professional student LOC?

[crusher2015]

As a Canadian medical student I had access to a 200K LOC at prime that I've hardly touched and have actually been paying back a little now that I'm in residency (balance ~15 000).  I've slowed down lately because I'm interested in saving for a home downpayment outside of TFSA/RRSP plans. There's no other debt. I have an almost fully funded TFSAs with balance of 41K, mostly in CPP model ETFs and a little cash for emergencies. I have 4500 of remaining contribution room for 2015. I've recently been hooked on MMM and would like to stay on top of FI planning mainly for the purpose of maxing my career flexibility (part time when i have future-kids in 5-7yr, international work in 10-15 yr, etc).

What I'd like to do is borrow a lil more from the LOC to fully fund the TFSA (4500 this year, 10k next year), and have all in investments. Am I crazy for thinking of leveraging this way? I'm about 1.5 years away from practice with estimated gross income 350K once I'm working (net will be way less, especially with clinic set-up costs). I plan to max my RRSP once my tax bracket increases in practice.

Am I crazy to want to leverage the LOC to invest? I'm looking at prime interest of borrowing vs. possible 7% tax free gains in TFSA. Maybe I'd be crazy not to? I'm not too worried about risk, because the LOC will stay at prime with no payments until 1 year into practice (perhaps longer). I do have disability/life insurance. My current net income is ~3600/mo with 1K going into down payment savings monthly. I feel like my long term financial goals are: 1. Max TFSA/RRSP for long term gains 2. Wedding in about 2 yr (likely 10K - you may face punch) 3. Avoid lifestyle inflation 4. Save for house down payment to buy in about 3 years (likely 60K for 20% down + incidentals) 5. Perhaps professional corporation/Unreg investing/Fancy tax stuff

I also wonder if I'm overthinking, since this will all be small potatoes once I'm in practice. I know the ideal is to reduce expenses. I'd love to pay down debt, invest, and save for the down payment all at once but I only started using YNAB last month (love it though). I plan to post a case study once I actually consistently know where the money is going (I have a hunch a lot is travel, restaurants and shopping but TBH I've never tracked before).

Please advise. I'm mainly interested on your thoughts on using the LOC to invest, but would welcome other comments. And thanks!!

[Tjat]

I'd probably lean away from investing additional debt. With prime at 2.85%, you're down to a 4-5% return in the market - assuming a long-term average performance. If the market tanks, you're down that + still owe the loan. The risk I see is that you'd increase your balance to nearly 30K, which could delay your homeownership plans if things go south. To me, the risk/reward doesn't seem to be that beneficial. Given that you have *only* 5,500 to go in your TFSA this year, my thought is you can easily fund that by cutting back on the restaurants/shopping bucket. It's already May so since you'll be growing the nose beard heading into 2016, the 10K should then be attainable with no additional lifestyle changes.

Out of curiosity, how is your down payment fund invested with your 3 year time horizon?

[Retire-Canada]

Please advise. I'm mainly interested on your thoughts on using the LOC to invest, but would welcome other comments. And thanks!!

Don't do it. You have a high earning potential. low debt and if you are tuned into MMM you'll be FI fast without the need to take any risks.

Just save and invest as much of what you earn as you can and be happy.

-- Vik

[crusher2015]

Thanks for both of your comments! It's nice to have somebody help you look at the big picture.

Out of curiosity, how is your down payment fund invested with your 3 year time horizon?

I don't yet, I only have about 5000 saved so far because I haven't been that organized to date. It's just in a regular savings account for now.