I searched for Velocity Banking but did not get anything to return except for some lenders using that name. I just was introduced to this strategy this week and was curious if anyone has done it and what their experience with it was. If yuo don't know, the basic concept is to use a line of credit from the bank and use it like a checking account so you put yout income into it but get a LOC for like $10k, add in your income for that month, and use the $10k to pay the principal, and then pay your other expenses from that account and as long as you are spending less than what is going in, you build that LOC back up again so you are able to pay back the $10k LOC and then use it again to pay toward the principal. So if you save $1k each month, then every 10 months you can use it again or get an increased LOC and use a larger amount. Doing this strategy gets a 30 yr loan paid off in about 7 years and saved tons of interest. The LOC calculates interest on an average daily balance, so as you have money going into it each month, you are creating less of an amount to charge interest for. So over the course of a year, for that $10k LOC, assuming $4k income and $3k expenses, for a $250k mortgage at 5.25%, you pay about $13k in interest on the mortgage payments (first year of mortgage) vs only a few hundred dollars on the LOC. The only down-side I can see is opportunity cost. That money that you are saving each month could be deployed to purchase other properties rather than helping to pay off any specific loan. But if you have enough other sources of income and strictly use the rental income for any given property to put back into its own LOC, then theoretically, you can have full 100% cash flowing properties in 7-8 years, depending on how much you are saving each month. You could even use it for your primary residence. I just bought my first 4 plex this week, literally closed the same day I was shown this strategy, and it blew my mind. I want to use it with this property since it will be cash flowing about $700/mo and if I can get it paid off much sooner and save a lot of money in interest, that would be awesome.

What you have to remember with this Velocity banking stuff is that it really isn't this golden goose brilliant idea that some people make it out to be. If it was, everyone would be doing it. It's also the reason why smart people can't understand what is so "brilliant" about it, because it isn't brilliant or that helpful. People advertise it as a way to pay off a mortgage in 7 years etc blah blah blah it all sounds good to the ill informed or financial illiterate, but in all honesty, you could actually do that with any mortgage you want, you just have to be disciplined. The Velocity banking is more of a way to force you to diligently pay something off quickly. Another trick they like to talk about is how much interest it saves you, they typically show you how much interest you would pay over 30 years on a mortgage and take that entire interest amount as a % of the loan or house value, which is not a true % interest you are paying lol. And of course if you pay off a house in 7 years, you "save" a lot in interest, but you can do the same by paying off a mortgage in 7 years conventionally (albeit you would still pay a little more interest). This Velocity banking is more like one of those credit card hacking people where they have a slightly better rewards package on their credit card, sure they make a few bucks more, but the effort and time it takes to do it is not worth it to some people. Yes the method is probably slightly better than just using a conventional way of paying, but it's not absurdly better or genius. This is why it's so hard to try and understand why it's so much better, it's just not. Trust me, I'm a CPA and work in corporate finance and I've sat through a demonstration on this. You make a very good point about opportunity cost with the HELOC and it's a huge detractor from this method. Why would you seriously care to pay down a 4-5% mortgage quickly if you are an investor and can earn 8-20% on your money. I posed this same question to the person on stage in a 40 person presentation on Velocity method and the presenter gave some ridiculous response that didn't make any sense. I'm not saying this is necessarily a bad idea or a scam, but rather not some crazy good thing. The benefit from a HELOC is that it allows you to front the payment for a month, which lowers the average amount you owe on your loan throughout the month, and thus the interest you pay is lower, whereas if you didn't have the HELOC, you would have to wait a month to see that decrease in interest. They then say to take that interest savings and put it against your mortgage again and keep doing that and you have it paid off in 7 years. Ok sure, why would I want to do that if my mortgage rate is 4.2% lol, why not take that savings and invest it. They target peoples emotions "pay off your mortgage in 7 years WOW!!!" when in reality it's probably not the smartest financial advice.

@Don Spafford @David Dachtera Run the numbers people!!! My head is spinning and my brain is mad. Original home mortgages Pre-1934 were on average 7 year loans. The payments were interest only until at the end of 7 years you made a balloon payment of the entire principle. Most homes were foreclosed on especially when the great depression hit. In response, the amortized loan was created. What the amortization does is say you give me the length of time you want to borrow this money and I will even out the payments so you will know what is owed for the next 15 or 30 years. Let us not forget that at the beginning of the loan you are borrowing a larger amount of money than you are at the end of the loan. They charge you so much interest at the beginning because you have a huge principal amount out. You pay the same APR the entire time of the loan. The amortization part is that they adjust your principal payment so you know you can afford the payment and so it will stay the same. You can't be mad that a bank has given you $300,000 and wants interest on that entire amount. How else would you have them do it? That also means that as you pay the principle down you will pay less in interest, because the bank has less money out. I guess they could amortize the loan so you pay more principle up front and then you are upside down on interest at the end of the loan. That is what would be atrocious and a crime against math. Don't compare percentage of interest paid with interest rate. (My brain is getting mad.) Yes, you pay 95% interest when you borrow 300,000 over 30 years, but that is not the rate of interest. That is the total amount of interest we pay divided by the principal. We use APR so we can compare apples to apples. It is a standard. That is like if I were to buy $5 in bananas, and $20 in chocolate then say taxes on bananas is only 4% while taxes on a chocolate is 80%. Is that true? Well, all the food is taxed at 4%, but if I take the total amount of taxes paid $1 and $.80 is for the chocolate, then 80% of my taxes go to chocolate. You can't compare APR to 30 years of interest paid turned into a percentage of the principal. They are not the same thing. This is the smoke and mirrors. I have seen a guy tell someone with a 15 year loan at 5% interest to trade that in for an 11% heloc. Run the numbers, people. If you pay the same extra payments on both loans no matter how you cut it, you will pay more for the 11% interest loan, even with simple interest. The magic is in the extra cash. They say it is in the simple interest (I have also heard simple interest compared to amortized interest, which is not a type of interest, it is a type of loan) that holds the magic. It is not. Run the numbers. When I say run the numbers, I mean pull out an excel sheet and see what happens in your personal scenario. Look at your loan terms. The difference in interest type and APR only slightly accelerates the pay off. The huge payoff occurs with the cash. You still have to pay the principal down. It doesn't go away without cash. In any scenario where you pay $200,000 off in 7 years means (200,000/84) you need to be paying $2080 in principal plus the interest, be it 5% or 11% calculated according to your loan terms. So, if you have a $1500 mortgage payment and you think there is some magic that will pay that off without adding more cash to that payment, you are up in the night. Notice, in the scenarios given you have $4000 in income and $3000 in living expenses. Where do you think the extra $1000 is going? I must say another part of the magic is just refinancing. You are refinancing your other debt to have more cash to pay off principle. The ones that are best helped by this strategy are those with high interest debt. $20,000 in Credit cards and car loans at 15% refinanced at 10% can save you about $100 in monthly interest, which can then be added to your principal payoff. Even then, cash is king. That extra $1000 is still doing most of the work. Another note: You are not saving $1000 a month. $10,000 at 5.25% is only $50 a month in interest. No matter how you cut it, even if you borrowed that $10,000 at 0% interest, the most it would save you is $50 a month. The $1000 is the $1000 extra from your paycheck that you aren’t using ($4000 paycheck and $3000 in expenses).

@Don Spafford, @Ned Carey makes a good point. The whole point of debt acceleration, "Sweep Strategy", "Velocity Banking", or whatever you want to call it is NOT to reduce the principal paid back. It's to reduce the amount of interest you pay over the life of the loan. For example: $200K at 5% for 30 years ... Initially, your payments are mostly interest. Making only the scheduled payment, that doesn't turn around until roughly the 195th payment (16-1/4 years - past the half-way point in the life of the loan). By that point, the total of payments is already in excess of the original principal balance - roughly $202K. By the end of 30 years, the interest amounts to nearly $187K, meaning it's a 93.5% loan, not 5%. Amazing what compound interest can do, eh? By accelerating that to the tune of an additional $15K of principal per year (if you can manage it), the payoff comes closer to the 10 year mark and the total interest paid is closer to $52K or 25% of the initial loan balance. Big improvement.

Oh, how misinformed the people on this thread are! Don, the presentation you sat through might not have effectively demonstrated this strategy. Because it absolutely does work, and if you understand the difference between simple interest and compound interest, it will make more sense. I've been in the Mortgage business for over 15 years and I understand this strategy. NO, you don't have to be more disciplined. It's all about a paradigm shift. We have been brainwashed into thinking the traditional way of banking and the traditional mortgage is normal and acceptable. Everyone is most interested in obtaining the lowest rate. The velocity banking strategy is so much better. You can pay your 5-6 yr auto loan off in 5-6 months. The 30 yr mortgage off in about 7 years. It's not about making extra payments. What happens when you make extra payments on your mortgage? That money is gone. Unless you refinance. You can't swipe your mortgage to pay for gas or groceries if you need it... And yes, there is an education that goes along with it. You can do it for $1997, which by the way, is 100% tax deductible. It's a business write off. It's funny, people are quite alright paying around 3% in closing costs on a traditional mortgage, but balk about the cost of the education that helps you save HUNDREDS OF THOUSANDS OF DOLLARS! AND, once you have your debt paid off, all of those payments equal 100% cash flow. Plus you still have that line of credit...what do you do with it? YOU USE IT TO BUY INVESTMENT PROPERTIES!!! Any of you please feel free to contact me and I would be happy to help you understand it and make this strategy work for you!

@Don Spafford this is not a new strategy although it may be a new name for it. At the time I first heard about it, it cost $3,000 for the software to tell you when and where to move the money. At the time it was also a multi level marketing product. What they don't tell you is to pay off a 100K mortgage in 7 years you still have to pay at least 100K. There is no magic bullet that makes the debt go away. All their demonstrations assume you make substantially more than you need to live off of, and use all of that extra money to pay down the mortgage. You can pay more towards your mortgage every month without anyone's help.

You can learn how to do this for free if you just ask and are open to learning something. It works and I have done it. I share it with any and all who will listen, But I dont charge any one.

@Don Spafford, It's actually taught as part of basic financial education in some countries - not the U.S.

@Don Spafford Someone asked the question at some point in the threat and I did not see an answer. There is a lot of good information here but also a good amount of confusion - probably unintentionally. For me, I try to keep it as simple as possible. If I get a regular 30 year mortgage for $100K, the bank/lender gives me an amortization schedule that tells me exactly what my interest and mortgage payments will be each month for the whole 30 years. It also discloses to me that I will have paid close to $200K if you add all my payment together for the whole time. Since I owe $100K to begin with, I pay the another almost $100k in interest. I will have to pay about $535/month. Let's say I have other expenses to live, car , etc. of about $1000/month, the bank will probably want me to make about 3000/month to be comfortable to give me the mortgage. If I do the exact same thing with a $100K HELOC in 1st lien position for the same house, the same monthly expenses, and instead of 5% interest rate I assume 6% interest rate, I will be done paying in 7 years. Many people here will say that I am paying an extra each month into the HELOC - yes that is true. But my interest is also calculated every day and not once when I get the mortgage. Every time I reduce the balance, it is calculated and adjusted, so more of my payment goes towards principle and less to interest. My lifestyle does not change., All payment remain the same - assuming I am disciplined. If you want to optimize even more, you do all your monthly payments using a credit card and you pay it off before the credit card payment is due. The credit card company is basically giving you the money for your payments for free during the month if you pay them when the statement arrives using a check from your HELOC account. The last and most impressive kicker for all the investors in our BP community is your ability to react to an opportunity immediately. Just imagine, 4 years into executing the plan described above, someone offers you to buy an apartment and if you can do it right away and in cash you get it for $50 instead of $65K. With your HELOC strategy you can do that at that same day, write the check for the $50K, close and receive title. If that apartment pays you $300/month after expenses, you will still be done with your original $100K purchase after a total of about 10 years. After that time you own your original property plus the $50K apartment. With that you can buy more properties using the full $150K. With the original traditional mortgage plan you would still have to pay for another 20 years and your balance (showing how much you owe in principle) will be still almost the same $100K as you had at the beginning. Daily average interest and access to equity are the two main points. Your life is totally the same and your payments are totally the same. You go amortized and be a proud owner of a $100K property 30 year later (assuming no appreciation). I go HELOC and will be the proud owner of $450K in equity (assuming no appreciation). I guess you decide what you prefer.

@David Dachtera @Don Spafford I have run the numbers in so many scenarios and in NO scenario is it better to borrow money at a higher interest rate to pay down a loan with a lower interest rate. I am so glad you sent me this scenario, because it confirms what I have asserted. I have returned to you what you get when you run the numbers. All I am saying is run your numbers and see if it works for your particular scenario. The numbers will change if you have a 0% interest credit card or LOC. That would work, if your interest is less, you will pay less. First of all you put the excel sheet together wrong. When you take out a HELOC, you would begin your loan payments with the $15,000 dollar payment. It would be paid on the first month, the thirteenth month, the 25th month, and so on. You borrow the $15,000 and put it towards the loan, then make payments on the HELOC to pay it off. You have the HELOC getting paid off before you apply the $15,000. If you compare my sheet against the sheet you sent, it pays off 8.8 years instead of your 9.17 and the interest paid is only $49,866.22 instead of $52,073.75. Next, you have paid the $15,000 each year, but have only calculated the $15,000 being borrowed once. It would need to be borrowed every year. You borrow, pay it off, borrow, pay it off, and so on. You would need to borrow that $15,000 nine times. Now, with the numbers in your scenario run correctly, you can compare to the numbers ran if you take that same $2375 payment ($1073.64 Mortgage payment + $1301.36 HELOC payment) and just pay that each month on your 5% loan. Without going through the hoops of a HELOC, the loan is paid off in 8.7 years (instead of 8.8), making 104 payments (instead of 106), and the real kicker, paying $46,829.06 in interest (instead of $49,866.22). In conclusion, yes, if you pay an extra $15,000 a year towards your mortgage you will pay it off much sooner than if you don't, but NO you will not save money using a higher interest HELOC to do it. You will actually pay almost $3,000 more. Perhaps my excel sheets will help illustrate my frustration of what is being taught. Corrected Loan Acceleration Run Your Numbers Hopefully, my links will work. I am new to Bigger Pockets so I am not sure how you did that cool attachment to your excel sheet. This is my work around. I hope you consider reposting the corrections. Thank You.

Has anyone ever used the Velocity Banking Strategy?

David Dachtera

Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes

9y

@Andrew Ware,

You may just be over-complicating something amazingly simple. The idea being employed is that you're paying more principal to reduce the total interest paid over time and shorten the payoff period.

It's really just that simple, as the spreadsheets illustrate.

1 Reply

Andrew Ware

Gardiner, ME · Member since 2015 · 190 posts · 177 votes

9y

David Dachtera so if I'm over complicating it why bother with the heloc at all? I mean and not just make an extra principal payment with spare cash. Why are promoters (including in this thread) saying it's saving so much money? I suppose that should be self evident because promoters promote. It seems like it's saving money roughly equivalent to making extra payment toward the principal. I'm not arguing I'm just baffled why this is getting some press. It has to be something like timing payments so you are getting out of some interest for 50 days etc. Otherwise they would say just make extra payments.

6 Reply

David Dachtera

Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes

9y

@Andrew Ware,

It's one option of many and has advantages others don't.

Primarily, if the home owner has equity and income but low or no cash reserves, it allows them to start with the HELOC chunk, then pay it back, then repeat.

Using the HELOC bolsters your credit profile by using it and paying back repeatedly.

HELOC interest may be deductible.

There may be others ...

2 Reply

Brian CardwellPro Member

Investor · Odenton, MD · Member since 2017 · 204 posts · 144 votes

9y

@Andrew Ware.

When you use the extra money you may have, once you apply it to the principle the money is gone. (you dont have easy access). If you use the HELOC properly you will still have access to the extra money.

2 Reply

Don SpaffordPro Member

OP

Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes

9y

@Renee Bridwell Thanks for adding some new information. I agree with you and do understand that this scenario is not making extra payments from your earned income. Like you said it is more of a mindset change on how to better utilize your income, as you are still essentially saving that extra $1k per month (sticking to the original example) by putting it back into the LOE and saving that amount back up each time to redeploy the full amount of the LOC. So yes, it totally makes sense to me. I see the point others are trying to make as well. it probably is not for everybody, for sure. But I still see it as something we should all get more educated on to be more prudent with how we pay interest. Thanks to everybody who has posted to this thread. I never expected it to go on as much as it has already. This is truly amazing.

1 Reply

Don SpaffordPro Member

OP

Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes

9y

@Andrew Ware What @Brian Cardwell said is true but in addition, the reason for doing it this way in large chunks rather than just making an extra $700 or whatever payment each month is that it pushes you much farther ahead in your payment schedule so that each subsequent normal monthly payment is paying more towards the principal and less in interest. if you just make an extra payment here and there, it helps you pay it off sooner, but doesn't save you very much in interest.

I found the company that teaches this, there is a short video on their home page, the velocity banking section starts at about 19 minutes in. it may be worth watching to understand it a bit more. I am not promoting their company or anything they do, I have no affiliation with them. If the link works, it is here :

https://www.nreigrp.com/velocity-banking-strategy-2/

if not just do a search for velocity banking strategy and find the one from NREIG. Of course the video is a sales pitch for their service to teach you more in depth how to do this but the basic presentation here is still pretty good.

1 Reply

Scott L.

Investor · Flower Mound, TX · Member since 2017 · 182 posts · 198 votes

9y

Use this weird trick to pay off any mortgage faster..... Make bigger payments than required! Presto your loan is paid off faster. Now all you folks out there using this method... You are violating my business method patent on this weird trick. You therefore owe me 1% of any payments you make in this fashion as a license fee.

3 Reply

Hardeep Singh

Pinole, CA · Member since 2017 · 28 posts · 8 votes

9y

@Renee Bridwell

I am trying to pay off my car fast. How I can use this strategy to payoff my car fast?

0 Reply

Don SpaffordPro Member

OP

Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes

9y

@Hardeep Singh It works the same as the mortgage strategy, just on a smaller scale. @Renee Bridwell can probably explain it much better, but think about this. With any loan payment, you are paying almost all interest in the first half of your payments. 4 yr loan, the first 2 years are like 95% interest and very little going toward principal. So if you have say a $10k loan and use that LOC for maybe $1-2k, pay that at the beginning of your loan toward the principal, then that jumps you way ahead in your payment schedule so that when you make your next monthly payment, you are now paying maybe 60-85% toward the principal so it gets paid down sooner. And your LOC you deposit your normal paychecks into that acct and make your normal other living expenses from it like you would your checking acct and the LOC gets built back up so you are paying very little interest on that amount you "borrowed" from it. This is one of those things that are simple but complicated, like many have said it is all about a mind shift on our way of thinking about finances.

Again, thanks to all who have contributed thus far, i never expected it to go on as much as it has and I am grateful. I know I have learned a lot and others have too. or at least have caused them to think a bit differently on it.

1 Reply

Hardeep Singh

Pinole, CA · Member since 2017 · 28 posts · 8 votes

9y

@Don Spafford

Great. I appreciate for your response. I have another rookie question about the process.

So, I guess my first step is to go to a local bank and get a LOC account. For example, if my line of credit is $3000 then pay that towards the principal payment for the car and start depositing money into that LOC account. Isn't the interest for using that LOC will close to the Interest the car dealership charging me on the loan?

I already bought my car and want to pay off the loan fast. I have about $14,000 loan on it. Do I have to refinance the car first to pay the money from my LOC account towards principal. How should I go about it?

0 Reply

Don SpaffordPro Member

OP

Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes

9y

@Hardeep Singh The idea behind the LOC is to not pay as much interest if it is done properly. Again, I am no expert and have never done it this way, I am just sharing what I learned about it. The assumption is that you are saving a good amount of money each month from your earnings vs expenses. So, you open a LOC, but don't take anything from it just yet. When you get your paychecks or whatever money you earn, instead of putting it in your checking or savings account, put it into the LOC account. You will then use the LOC acct like a checking account. So, now you have a LOC of $3k plus you added in a check say for $2k, now it is up to $5k. You then take out $3k to pay toward your car principal. Your LOC is now only down $1k that you will pay interest on. But as you get paid again you add it to the account and make your other normal monthly expenses from it like you did with your checking account. That way the LOC balance is constantly fluctuating and should never get to 0 so that you are not paying interest on the full amount and basically you are constantly paying it back as well so that you are building credit at the same time. And then the principal on the loan gets paid down quicker as well. Like I said though, it takes a big change in our normal way of thinking about loans and such. Once you can grasp the concept it makes complete sense. The big question is if you are able to do it. Since most people don't or can't save money each month, it may not be a good solution. I will be testing it out myself very soon. I am taking out a small car loan and a LOC to test it and see how it goes. If it does work well I want to implement it into my mortgages as well. Again, I am no expert in this, which is why I started this thread to find out more and ask other BP members who have done it and are much more familiar with how it is to be done properly.

2 Reply

Hardeep Singh

Pinole, CA · Member since 2017 · 28 posts · 8 votes

9y

@Don Spafford

Great Information Don

I definitely have the mindset and have the ability to save, just want to be sure on the process.

So from the example you gave above, when you are 1k down to pay interest on your LOC account. Then, you can add another 2.5k in your account bringing your account to 4.5k. Use $500 for expenses then use another 2k towards your car principal and you back 1k down. So, you are using 1k every month to paying your car principal down (assuming you can deposit 2.5k every month). Can you check if my math is right?

Do you know if you can pay towards your car loan principal every month an extra payment?

I tried to apply this concept a while ago and i could not able to save, however, I am going to try it again with better understanding of how much I need to save and deposit.

Thank you for your time to help on this concept.

0 Reply

Don SpaffordPro Member

OP

Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes

9y

@Hardeep Singh Yes, that's the basic concept. Your math looks to be a bit off, where you say you are at 4.5k, then use $500, (puts you at $4k) then use $2k for the principal (then you are down $2k not $1k as you stated). But essentially yes, you are just using some and paying it back each month with your savings, or maybe a longer term if you take out $2k but can only save $500 per month, it may take you a few months to get it back up, but that's why you plan to start with more than what the LOC level is. Don't get a $4k LOC and then use it all to bring it to 0, you first add more to it so it is above the level they gave you, then borrow from it. And yes, of course you can also add more to your principal each month as well. That will only help speed up the process even more. Then when you have it all paid off, that LOC is still there to use for other things such as rehabs or your mortgages, etc.

I'm hoping other, more experienced, knowledgeable people will chime in to correct me or clarify more if needed.

Let me know how it works out for you and share with others if it is successful for you. I will do the same.

0 Reply

Hardeep Singh

Pinole, CA · Member since 2017 · 28 posts · 8 votes

9y

@Don Spafford

In math, the reason I say 1k down because the original LOC account is 3k. When you have 4k and you take 2k out from it, then you have 2k left in the LOC account and you pay interest on 1k only (3k-2k is 1k). Is that right?

Make totally sense to let it grow first and then use small portion from your LOC account to pay off the mortgage or car payment.

Great thanks for the time. I will give it a try and if I get some success I will share it.

I heard some places give Personal LOC for 12 months on 0 interest.

You can use 3 of them, taking out 2k from each for a year. you have 6k now Assuming you are saving $500/month. It will take 4 months to pay off 1st, and a year to pay off all 3 without paying any interest. Someone told me that. Is that make sense.

0 Reply

Don SpaffordPro Member

OP

Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes

9y

@Hardeep Singh Yes sorry, I was thinking $4k, but that is the amount I will be using. Sorry for the confusion. Yes you are correct.

0 Reply

Don SpaffordPro Member

OP

Investor · Idaho Falls, ID · Member since 2016 · 912 posts · 629 votes

9y

That's interesting. Please share if you are aware of what places give the 0% LOC. I have not heard of that being possible since we recovered from the recession.

0 Reply

Renee Bridwell

Investor · Meridian, ID · Member since 2017 · 14 posts · 18 votes

9y

@Hardeep Singh I’ll get you some info. Depending on what your cash flow is depends on how fast you can pay that car loan off

0 Reply

Jordan Brady

Real Estate Agent · Sandy, UT · Member since 2017 · 1 post · 1 vote

9y

This Topic on "Velocity Banking" "Debt Sweeping" has hit top of the list as the most controversial way of paying off what most people consider as their biggest purchase.

Sure getting a new outlook on how you can save some big bucks can reach a "million ears" especially when servicing the debt and reducing risk/intrerest and having the home paid off in 7 years sounds great

But does this so called Velocity Banking really change the whole Big Banking Institution?

After attending an event in Sandy, Utah a group of Realestate Investors seeking Trainee gives an insiders addition of what "The Wealthy Mindset" does and acts and promises 2 things

1. You can have your home paid off in 7 years

2. How the "Education Package (20K)"becomes effectively free

The Idea is taking Loans amortized (one directional) which = BAD and transferring it to a Line Simple(Revolving)= GOOD

With the Guru's polished script " i look at many different models Income producing models, financial models, Victoria Secret models" and saying that loans are Amortized with front ended interest and transferring to a HELOC will knock out the hefty interest, like Floyd Mayweather vs. Conor McGregor, not to mention the dough that Floyd made for that knock out.

Taking an average Americans salary of 5k a month and putting 600 in credit cards, 600 in car loans, 1000 in savings, 600 in misc, 1300 house payment you are left with an Noi of 5k - 4.1k = 900 bucks

Putting that same scenario into your HELOC. You wipe out credit card debit and move savings straight the HELOC while putting any loan on top of that as well thus increasing cash flow while lowering interest.

NOI 5k - 2.5k = 2.5k

To the people outside of BiggerPockets this seems a little overwhelming but makes a little sense.

What gets Expressed over and over is Cashflow = King If you can put everything onto your HELOC or advance class your Credit cards with 0% interest making cash advances with a transfer fee of 3% you will not only have the same money coming you will use the Banks against them and pay the house off sooner. While this has some merit you can look at your cashflow without using any HELOC. And see that if you make 5k less expenses 2.5k = 2.5k you can attack it as well.

My Conclusion

1. CashFlow = King

2. Loans are one way meaning once you put money in you don't get it back and lines are revolving.

3. Taking a step to look at ways of paying off your home faster (paying extra to principal) and paying less in interest is a step in right direction.

This does seem to have an ongoing debate on what is the better approach but as for now it does NOT get rid of Big Banking Institutions and their Hefty Interest

P.s. If you can lower interest in any scenario maybe paying daily as well besides monthly to attack as much principle as possible is key.

1 Reply

William Hochstedler

Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes

8y

This technique was presented to me as advantageous for those who have a bunch of cash on hand. Whether it be reserves for investment properties, income, float, or security deposits, the key is to be paying interest on lower principal balances.

Another way of looking at it is, let's say you get paid $10K from your regular job on the first day of the month. Over the next 30 days, you spend all of that money. However, this gives you an average daily balance of $5K if spent evenly throughout the period.

With the HELOC strategy, this would mean that you are paying interest on $5K less in principal. If you continue making a regular payment based on the full amount, you will be amortizing the balance faster.

Back when I looked at it, it only really made sense with a large amount of cash on hand relative to the loan balance.

But like others have said, you forego fixed rates and opportunity costs (potentially) with this method.

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Hardeep Singh

Pinole, CA · Member since 2017 · 28 posts · 8 votes

8y

@Don Spafford I believe the 0% can work for cars, not on mortgages as some institutions give you 0% for first 12 months. I came across one or 2 names but definitely I can share if i came across again.

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Hardeep Singh

Pinole, CA · Member since 2017 · 28 posts · 8 votes

8y

@William Hochstedler

Definitely makes sense. Thank you.

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Bettina F.

Investor · Post Falls, ID · Member since 2016 · 606 posts · 699 votes

8y

As landlords, we were looking for a REI group to learn about new laws, network with other landlords (possibly find someone to "babysit" our building while we travel), be witnesses when we served legal notices, etc.

I attended at local REI group, that was supposed to be these thing, but turned into one massive get-rich-quick after buying our $17K program to teach you how to do this. We were not interested. We felt that the promoters were taking advantage of the poor (some elderly) schmucks in the audience.

I paid off a house early. When interest rates dropped, we refinanced into a 15 year mortgage and paid an extra $50K into the loan. We then paid that off in 10 years, by making extra payments to the principal. No HELOC, no second mortgage needed. My credit is excellent, my net worth is better.

This strategy may work -- but the promoters failed to teach about the increased risk. Debt increases your fixed costs, and leverage increases risk. Most families live month to month with little reserves. Leverage yourself to the hilt and you better not lose your job, get sick, or have major car repairs.

1 Reply

Brian CardwellPro Member

Investor · Odenton, MD · Member since 2017 · 204 posts · 144 votes

8y

I agree with your second paragraph... they are smucks for charging and taking advantage of folks.

Congrats on paying your home off early.
If families are living month to month with very little reserves then they bought too much house or have over extended themselves in some other way. This method would not be good for them.
As for the families who do have some reserves, this method does NOT increase your debt and does NOT allow you to over leverage and absolutely does work when done properly.

1 Reply

Account Closed

Redwood City, CA · Member since 2017 · 5 posts · 2 votes

8y

I have a small problem. My bank will not allow me to use my LOC for my Bill pay. How do I work around that?

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Brian CardwellPro Member

Investor · Odenton, MD · Member since 2017 · 204 posts · 144 votes

8y

Originally posted by @Account Closed:

I have a small problem. My bank will not allow me to use my LOC for my Bill pay. How do I work around that?

So you can handle this by transferring the money from the LOC to your checking account for your bills. Just make sure that you leave the excess in the HELOC.

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Has anyone ever used the Velocity Banking Strategy?

Has anyone ever used the Velocity Banking Strategy?

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