Velocity Banking Method
Has anyone used the velocity banking method? If so how did it work for you?
Most Popular Reply
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
Sorry no. Watch the videos again. It’s OK at 6-10% interest rates when it was popular. They keep trying to revive it even as interest rates drop and it becomes a worse and worse deal. There’s NEVER been a worse time to not lock in long term FIXED rate loans.
Simply click on the magnifying glass in upper right. It’s been debunked for years and years.
YES YES YES YES YES! I am so glad to read this! Welcome to the BiggerPockets forums, @Ashley Dais!
While I have not used the complete Velocity Banking method I have borrowed heavily from the method to optimize some aspects of my loan payments. For example, this is something I'm experimenting with right now:
- Paying simple interest loans with fixed monthly payments daily or weekly instead of monthly.
- Paying early on my monthly amortized loan payments (like the monthly Principal and Interest payments on my 3/1 ARM commercial loans. So far I've been able to gain an average of .17% extra equity with each payment, with occasional spikes of up to .5%. While this isn't a lot to write home about on the face of it, at scale the cumulative affect of timing the payments differently is tremendous because it chips away at the Current Loan Balance (on which interest is assessed), while not changing the monthly payment amount.
What're you seeing as a potentially good strategy with VB?
Hi, @Will Fraser! Thanks for the welcome and sharing your experience.
I recently learned about this method from a YouTube video. It seemed to right to be true...but I wanted to see some real life results from others. I'm about to purchase a new home as a 1st time buyer and I can see how using my revolving simple interest loan, i.e. credit card can help with paying my mortgage in a fraction of the time. Also, increase cash flow through other real estate ventures in the future.
1st...I am want to begin with paying the credit card off with this method and then transition it to the amortize loan(s).
@Ashley Dais I just learned about the velocity banking technique within the last week and it blew my mind. I'm still trying to poke holes through it because, like you said, it sounds too good to be true, but I haven't found anything yet. I've run the numbers and it seems to be a no brainer in my case. Looking into implementing within the next few weeks. I'll let you know how it goes & you do the same should you decide to try it. Best of luck,
Drew
@Andrew Yane, hey! Absolutely! I'm in the process of my mortgage loan application so I can't make any major moves at the moment but when I do I definitely keep you posted. I look forward to hearing your experience.
Thanks so much!
Ashley
#3 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
Sorry no. Watch the videos again. It’s OK at 6-10% interest rates when it was popular. They keep trying to revive it even as interest rates drop and it becomes a worse and worse deal. There’s NEVER been a worse time to not lock in long term FIXED rate loans.
Simply click on the magnifying glass in upper right. It’s been debunked for years and years.
You're right Bill. I retract my earlier comment. What I failed to realize is with VB, you'd be achieving the same result, or worse, as opposed to if you simply paid extra down on the principle each month, esp at todays low interest rates. I also didn't factor in opportunity costs like taking that extra money I'd use to pay down on the LOC to invest elsewhere.. an obvious oversight. Turns out I'd be way better off putting that cash in the market with historically average returns, or leveraging it for more properties.
At any rate, I've spent too much time on excel the last few days, and it's time for a beer.
Ashley, check out this other thread below. The 2-3rd pages offered the most insight.
I have been using a Velocity banking type strategy for several months, and I do like it.
The big shift is that it makes the default behavior of your money to pay down debt. You deposit your check against your debt, and if you want to have your money do anything otherwise, you must take a draw. When making trivial purchases, moving your checking account towards zero is much easier to rationalize than increasing your already negative HELOC balance. At least for me.. I tend to be more inclined to be disciplined.
I do not expect significantly better results than making extra principle payments straight up. I do think it is easier to make those extra payments because they become slightly reversible -- If you get in a bind you can pay down your HELOC less, but you couldn't re-draw against your car Loan, your home Loan or your personal loan without refinancing. So in the short term it makes parting with your money less scary.
I am only paying down consumer debt -- I think paying down a mortgage is less likely to be beneficial. I like the ROI on the bank's money better than the same return unleveraged -- at least for now.