Anyone ever done this?

Quote:

---

Velocity banking is a debt-reduction strategy that uses a Home Equity Line of Credit (HELOC) as your primary checking account to accelerate principal repayment on your mortgage. You open an interest-only HELOC, deposit your paycheck into it, and use the HELOC's funds to cover expenses. This strategy aims to reduce your mortgage principal faster by offsetting it with your income, leading to interest savings and quicker debt payoff.

---

For the right person, it's a really cool option. I've probably done half a dozen of these deals in my career. They don't get much attention and it may seem a bit scammy to some folks but the math checks out.

Not to sound like Dave Ramsey, but the only way to pay off your mortgage faster is to make principal payments. You can do this without adding a heloc.

There's a lady who has an entire YouTube channel dedicated to velocity banning. Pretty cool!

https://youtube.com/@vanntasticfinances

this is a great idea

PlanoAg98 said:

---

Anyone ever done this?

Quote:

---

Velocity banking is a debt-reduction strategy that uses a Home Equity Line of Credit (HELOC) as your primary checking account to accelerate principal repayment on your mortgage. You open an interest-only HELOC, deposit your paycheck into it, and use the HELOC's funds to cover expenses. This strategy aims to reduce your mortgage principal faster by offsetting it with your income, leading to interest savings and quicker debt payoff.

---

---

Where this is dangerous is if rates increase and/or the value of your home decreases and you are ever in a position where you can no longer make the payments.

I certainly wouldn't be initiating one of these right now. The balance of the HELOC as well as the balance on your original loan is likely to rise as a % of the value of your home in the coming years. Should you need to sell to pay off the balances, there's a chance the value wouldn't suffice.

Can someone give a quick summary of how the hell this would actually work mathematically? Wouldn't the HELOC need to be a lower interest rate than the mortgage? What am I missing?

Oh, I see its just simple interest vs an amortized schedule. And only paying off the drawn money. That's interesting. (Ah, and these HELOCs are often variable)... some risk, I guess, if you don't pay attention.

It seems to me it's really just taking the current excess cash flow each month and applying that towards the heloc instead of directly towards the principal of the mortgage. So instead of putting some money into savings, you're putting all excess funds towards debt. Whether it's the mortgage or heloc or some other line of credit, it's going towards credit.

I suppose the one benefit is it uses all of your available cash so you don't have any wasted funds just sitting in your account only earning a small interest amount, but if you run into an issue and you have an unexpected expense like your car breaks down, you can still draw on your line of credit to temporarily use that and then resume paying off all the debt.

I think its really just the amortization attack. Ultimately it comes down to effective interest rate, as does anything, but its an interesting concept and fairly low risk if you aren't cash strapped.

I don't understand how taking out a loan reduces your debt.

Sounds schizo.

bmks270 said:

---

I don't understand how taking out a loan reduces your debt.

Sounds schizo.

---

Taking out a loan to pay off credit card debt I can understand. Pay off the loan at a lower interest rate. Don't see it being helpful at all for people currently locked into 2-3% mortgage rates though. Difference in rates on anything new would be way to significant.