Do you want to pay down your mortgage faster? Maybe you have a debt that you wish to clear within the shortest time possible? If so, you should consider taking advantage of what the velocity banking strategy offers. This mortgage pay-off strategy has gained popularity in the last coupleof years, with no signs of slowing down soon.
But how much do you know about the velocity banking strategy? In this post, we will explain in simple terms how velocity banking works and how to implement this strategy without pushing yourself to the limit.
What is Velocity Banking?
To put it plainly, velocity banking is a debt pay off method used to accelerate paying down a mortgage or other debts. It typically utilizes a Home Equity Line of Credit (HELOC) to maximize net income and pay down your mortgage debt, as you minimize the interest costs. While you continue receiving your income throughout the month, you simply deposit it into the HELOC to pay down the balance.
How Velocity Banking Works
Now that you have insights into what the velocity banking strategy entails, it is also vital that you understand how it works. Before delving deeper into our discussion topic, let’s review the traditional method of paying off you debt.
Well, your paycheck is deposited into your checking account, after which you make debt payments with your checking account balance. You debt payments, are then distributed between the principal balance and the interest. This model tends to initially use the majority of your payments to pay off interest.
Things tend to be different with the velocity banking strategy since you first have to open a HELOC account. You then draw down a large chunk of your credit line and apply a lump sum payment to your mortgage. You use a credit card to cover all bills and expenses throughout the month.
The velocity banking strategy allows you to make periodic lump sum payments on a mortgage, which eventually brings down the principal and lowers interest faster. Ensure you research more about the velocity bankingconcept before using it to your advantage.