Velocity Banking - The Truth about Paying off Your Mortgage Faster 

I've been weighing paying down my mortgage vs. investing and I realize that investing over the long term will most likely be a better choice given the low interest rates. However, I wondered if paying down the mortgage initially (given the beginning of the amitorization schedule has the bulk of the interest) makes any sense. Could you let me know if there is a flaw in my understanding of how that works? Might make an interesting video.

For example, would it make sense to pay the mortgage down to reach the year 15 on the amitorization schedule and then switch to investing?

@@marcwilliams4246 hey Marc just seeing this...the video I did this week comparing 15 vs 30 year does touch on this -ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-SYxAQAAhJ1w.html let me know after you watch that one what you think. The money you use paying it down earlier will still be the equivalent of earning the interest rate on the mortgage. The reason you are paying more interest in the beginning of the loan is because you owe more money then. The interest payment throughout the loan is just math. The outstanding balance x interest rate divided by 12 months. For a $400k loan - 1st payment = $400,000 at 3% /12 months = $1,000 interest. Later on in the loan you owe less money so you owe less interest but the payment is the same so more goes to the principal. So paying more in the beginning is still not better than investing that money instead (making the big assumption that you can earn a higher rate of return on the investment) Sorry if that is confusing...

@@marcwilliams4246 You would still be better off investing as long as you can earn a higher rate of return on the investment vs the interest rate on the mortgage.

School of Personal Finance yeah I kinda realized the flaw after asking. I realized that once I started investing after the 15 years I’d be starting with nothing to accumulate interest on so it would essentially just be delaying everything 15 years and give you pretty much the same result by 30. Thank you for your response. I did watch your other video and it helped me realize that I only want to pay off my mortgage for personal satisfaction reasons but it’s not the most pragmatic thing to do. I’ve decided to pay my mortgage normally and put the difference in a Roth Index fund and maybe some REITs. I’m curious about your thoughts on REITs.

Thanks Mark!! That’s awesome. You are exactly right cash flow means everything.

But if you were so cash positive to pay off 38k in 6 months you didn’t need a heloc you could have just made lump sum or extra payments

@@chrisdranfield3828 That's true, I could totally do that. However, this strategy has everything to do with increasing cash flow. Every time I make a chunk payment on my mortgage with my Heloc. I increase my cash flow that month because the chunk payment makes the mortgage payment. After doing the math I estimate I will pay off my house 6 months sooner than just making extra principal payments.

@@marktra8two I would never say 6 months is an insignificant thing, but I would say that it seems like a tremendous amount of work to accomplish this.

@@chrisdranfield3828 You fail to take into account the loss of liquidity with making extra principal payments.

Lmao, then you don't need velocity banking.

@@cryptojihadi265 Exactly..just send extra payment to your mortgage company between teh ammortization cycles. Then this goes DIRECTLY to the principal.

Wow so you have around $7,200 in cash flow a month ??

Sure you did.

Your said you used a HELOC but then said pay your CC before the payment is due. I think you don't understand numbers and interest (daily or monthly).

Who did you follow? Or any books you can suggest please me and my husband are trying the same

@@user-fr9ns7mh6f I put all the monthly expenses I could on a paid off credit card. I always paid it off before the due date eliminating any interest. In this way I was able to postpone (get an interest free loan) every month's expenses and pay them off before the payment due date. Depending on when I charged an item I would get up to 41 days of interest free use of the money. I was intentionally always running short on money. Every spare penny I came up with I paid to minimize the balance on my mortgage. I sold a lot of stuff that I was no longer using. Craigslist and Facebook marketplace are your friend. Do all of your spending on Credit Cards that pay points or airline miles if possible. Always pay off your credit cards in full every month. Never charge on a Credit Card that you did not pay off in full last month. Only charge on a credit card that was fully paid for last month. That way you get both float and grace period on your monthly spending.

That only works if you're paying off the credit card IN FULL each month. In the example given by these velocity banking gurus, the LOC always maintains a balance, therefore it is accruing interest.

I do this monthly, so velocity banking seems like robbing peter to pay paul

​@Tamarocker88 in this example, the CC or LOC already started with a balance. So you're at the pay down portion of the steps. There's no daily interest accruing for the debt that's been paid with 5k and the expenses don't get added all at once.

It’s still less interest than a mortgage

What’s the point of doing that though? Why not just take that money you would pay off your CC with and apply that to the mortgage? The banks and credit card companies thrive off of people who say “I’ll pay it off every month.”

The issue is most people have the " want to do it myself mentality" but not equipped enough for a crash, hence get burnt, no offense. In general, invt-advisors are ideal reps for investing jobs, and at firsthand encounter, since Jan. 2020, amidst covid outbreak, my portfolio has yielded nearly 300%, summing up to 7-figure as of today.

John Desmond Heppolette is the advisor that oversees my portfolio. He's been able to gain some reputation and online recognition with over two decades in service, so it shouldn't be a hassle to find basic info.

Congrats that is awesome!!

It works for me as well.

Nice!

It’s working for me!!

Wow .Good job

Yes.

...at 21% interest

@@AndrewgSpeedruns - if you're placing that money from rainy day accts on your credit card, your interest payment goes down every single month. That's much better than it sitting there in an account making 0.25%. Put it on the card and it's used to lower interest payments and improve credit score. If you need it, there it is...doing double duty.

I mean, is it? If its sitting in your fully paid HELOC its doing exactly the same thing as if it were in your bank account and if you then put all that money toward your mortgage once you've paid the HELOC off, then you now no longer have that emergency money until you come up with the full amount of the HELOC to pay off. Its the same thing. If you want the money to be available for emergencies it can't be used to pay down your debts, if you want money to pay down your debts you have to take the money from what's sitting around or open some credit. It really makes no difference.

​@@michaelrudolph7003Heloc the bank can spike your interest rate at any time, so you absorb a lot of risk. Those extra emergency funds in the other comment, put in a HYS account. I ran the numbers a few weeks ago, it's a lot of work for minimal savings. If you got locked in a Heloc at a lower interest rate, why not refinance at no cost (sell points). Process would save us around 200 a year. Not hating on velocity banking and it works for some people, but it's a lot of work for minimal savings vs just putting that extra money to principal at the end of the month paying out from a HYS or HYC. Dont get a car loan to begin with, you are paying interest on a losing asset, double whammy.

...smh click bait.

Also, USE an "e"

Well said. Clickbait title and clickbait thumbnail. Only use a HELOC that can operate *exactly* like a checking account.

That is why you need an emergency fund set aside

@@alexlee6129 or a simple credit card for emergencies.

@@alexlee6129 If you put the money you would have in your emergency fund to pay down your HELOC you can borrow it back any time. Or you can use a paid off credit card to pay for emergencies.

Velocity banking worked everytime I have ever used it. All it is requires is disciple. I am completely debt free because of it.

​@@alexlee6129 Oh goodie! Hope Santa brings me one of those for Christmas! 😃

Jose Collazo thanks for your comment. I agree with what your saying...I also use a HELOC but the point is you are only saving a little bit of interest during that time that your “unused” cash is sitting in the HELOC. It’s not going to be the thing that is responsible for paying off a huge mortgage in 5-7 years. having the additional cash flow to pay off the balance is what will do it. You can have a line of credit or credit card just sit with a 0 balance in case of an emergency. It’s the same thing.

I have 20k emergency fund. I don’t care about inflation because the mortgage payment will not change. I understand homeowners and taxes change but the interest is on the mortgage only.

Thanks Dave!!

So VB creates free money?

If I understand this correctly, this guy is missing one point. It is that when you put all your available income on your HELOC or PLOC or CC, you will use that 'tool' to pay for your regular expenses. However, those expenses don't come out all at once. Therefore, you are saving on your interest since interest is calculated on average daily balance. So if you pay one bill at the beginning of the month, one in the middle and one at the end, it won't be as expensive for you compared to if you paid all those up front.

@@kristinshaw7497 True. But for the average person who lives paycheck to paycheck, the amount you can "park" (and therefore the interest saved) is trivial. Assuming a smooth flow of bills, it would be the interest on half of one paycheck. Usually negated by a higher interest rate on the LOC.

​@SchnabelMcSchnabel this isn't for people living paycheck to paycheck.

@@kristinshaw7497 He covered this point, you clearly didn't watch the video. When you calculate the daily interest as the balance climbs back up from the lowest point to the highest point as you pay your bills over the course of the billing period, the amount of money you save in interest by using velocity banking over just using the extra cash flow from savings is MINIMAL. The common velocity banking example given by those who promote the concept makes the bad assumption that you DON'T pay any bills over the course of the month. They then make the bad assumption that you make a lump payment to the LOC at the beginning of the cycle, and then for the entirety of the cycle interest is accrued at that lower balance, then all bills and expenses are paid on the last day of the cycle. And this is completely ignoring the interest you're being charged on the LOC because you're maintaining a balance!!!!

Thanks 🙏

Me too!

Agreed! I also used a HELOC to buy rentals.

I was JUST recently told about doing this with cash-out refinancing. I should NEVER have refinanced for any other reason than lowered rate or a down payment on a rental property. I paid out soooo much in interest over the last 6 years.

That’s fabulous!

So you invested, you didn’t do velocity banking.

Thanks Wyatt!

Thanks!

Giving 10% to charity is hurting yourself if you're maxed on 6 credit cards. Pay off the cards first, pay off your bills, then be generous with your surplus.

Be careful what you donate. Most charities are scams.

If that is all you got from this, he failed in his attempt to explain velocity banking.

Basically Velocity banking is taking your credit card payment and making it positive cash flow because your income going into your credit card satisfied that payment. So instead of putting your money into a checking account and paying our bills, including cc bills. You are placing your income onto your cc which will satisfy your payment, lessen your interest a little bit every month, and boost your credit score because your utilization goes down every month.

@@hnybjonez2961yea but your monthly expenses still goes on the CC and the cc monthly payment is still do which doesn’t make sense

@@hnybjonez2961. I appreciate this info but I still don’t understand VB concept! Is there a VB book for dummies? I can’t get my husband on board until I fully understand 😴

That is great Mike!! That’s how you do it!

That's great! Congrats! However, a lot of your capital was tied up. Those who really know how to do velocity banking correctly will know what i'm talking about.

​@@Sci-Fi_Fan296individuals don't and shouldn't care about cashflow. that's a business concept. each person has their own financial path. cashflow isn't as necessary. Building assets is more important

Awesome job

It is AMAZING that your house is paid off, but you lost the ability to use your equity. Now, you have a paid-off house with locked-in equity, which means you paid interest the other way, in lost opportunity cost. That is not a good deal.

If you look at someone break it all down for you, you'll see the difference from using a HELOC or credit card versus the mortgage. And you refinancing for cash out....a bank's wet dream.

Wow, so they calculate _all_ of your interest based on _one_ month?!?

Interesting...I've never heard this, but it's worth looking into.

A great amortization calculator will also tell you how much interest you will be saving during the life of the mortgage something he didn't talk about.

This is not telling the whole story. Yes, your mortgage in a vacuum will pay less by making 1 big payment vs say 12 months of extra payments. But you are ignoring the NEW amortization schedule for your LOC loan. That doesn’t just magically go away. The LOC has to get paid off too. The most obvious example is to take it to the extreme. If you had a $100k mortgage, you could do a $10k LOC and pay down a big chunk. OR you could do a $100k LOC and pay the whole thing off! And that would indeed pay down the amortization schedule and save all the interest on your mortgage. That is true. But you now owe $100k on a LOC too. Typically at a higher interest rate. What’s the schedule on paying that one off? Are you factoring that in? A $10k chunk does the same thing just on a smaller scale

If you have a big chunk of money to start with just make a bigger down payment and no extra effort is required.

Amazing job man

What is tax deductible here in Canada?

Paying interest in the HELOC vs by paying it down and the borrowing from it to reinvest makes no sense. assuming 9% HELOC rate, you are borrowing at 9% and would have to reliably and steadily get more than 9% to make any profit. Payoff the HELOC asap, and then reinvest your cash as you get chunks of it. Use the HELOC for big ticket items like needing to replace a roof or AC system in your rental, then pay off as soon as you can.

Exactly

It is quite apparent that neither of you understand velocity banking. But hey you do you

@@TheToomdog you only pay off anything as quickly as you pay down the principal. If you need to play mental games to pay off your debts, go for it.

I know this is super old and I don’t want to speak ill of VB, but I just wanted to point out that the HELOC is still an option in the extra payment scenario if you need/want cash, actually the only time you don’t have it as an option is when you’re in repayment on one already, and once you use the cash from the HELOC say on the mortgage for example, that money is equally locked in once it’s committed. Also reducing the principle balance makes that amount available in a HELOC, so you could pull it out if need as a loan, same as if you paid it from another HELOC. The difference in interest rate calculations may give VB a benefit, but the revolving nature doesn’t seem to be more flexible

@@tk.gaines velocity banking suggests HELOC (if you own a home) or credit card if you don't, or can't qualify for HELOC.

Why couldn't you just open a HELOC if needed if that same issue came up and you needed funds if you weren't using VB?

@@michaelrudolph7003 idk

Yes I’m so confused and still don’t understand how to use HELOC to pay off bills. I do understand the snowball effect to pay down debt but not HELOC.

Not if you put ALL your monthly income toward paying down the HELOC, and use the HELOC as your expense account, it's not maxed out and you're not paying full interest like his example, you're not accruing daily interest on a 12K loan, it's slowly building up toward the 12K as you use it for expenses. But then put all your income in there again...see?

@@mattedj It only works if your HELOC has a lower interest rate than your other bills. Right now HELOC rates are terrible. Still a shell game IMO. That said, we have zero debt so it's not something I would do anyway.

It does work...if you work it correctly.

@@Momo-SixTimes - even a 23% credit card is better than a mortgage...when it comes to paying down your debt/mortgage. Good thing you don't have debt....

I’ve pondered offering this advice to those in crisis but it requires discipline, often not the trait of those that max out CCs

I know.🤣

Thanks Olga!! 👍

lol Thanks!

Tell me more...the money has to come from somewhere so something had to have changed. Getting more focused and paying off your debt is awesome. My point is that velocity banking does not save you real money. It might help you become more focused and financially educated which is great but explain to me how it saved you money.

@@SchoolofPersonalFinance I used a heloc to advance down my amortization schedule on my 1st mortgage. I refinanced my 1st mortgage in April for $255,800 at 3.125% on a 20 year fixed. I have a $40,000 heloc at 3.75%. I advanced $30,000 from my heloc to chunk down my principle on my 1st mortgage, so i owed $225,800 on my 1st mortgage. If I didn’t chunk the $30,000 from my heloc then I would of paid $666 in interest and $768 in principle for my first payment, but since I advanced the $30,000 my first payment on my 1st mortgage had $590 go towards interest and $844 go towards principle, so I already had a $77 interest savings right there, but more importantly I was able to skip 37 months of interest payments along the way because i immediate started at payment 37 of the amortization schedule saving $22,000 in interest! Now the cost of that is the interest that I will pay on the $30,000 heloc balance which is $92 per month and that’s if I don’t pay down the balance of the heloc at all, but I have my entire pay check go towards that $30,000 every week and I pay all my bills from the heloc. It should take me 12 months to pay off the heloc and then I’ll chunk $30,000 again. So like I said, just my 1st chunk alone saved me $22,000 in interest and the cost is $92 a month at worse case scenario, so let’s say it takes me a year to pay off the heloc. I will pay like $600 in interest to do it. So would you rather pay $22,000 in interest over 37 months or $600 in 12 months? Either path you chose you will be at a $225,800 balance on the 1st mortgage. I’ve been in finance for 16 years and when this was introduced to me it took me a few months to truly understand it. I stopped trying to explain it to people because they look at me like I’m Doc Brown from Back to the future looking for a flex compositor. It works!

It basically comes down to how the interest is calculated on amortizated debt vs simple interest

Don you sound like a smart dude...let's take a step back and break this down because it is confusing and I have seriously had this same exact conversation 100 times already. I know it is going to be hard to convince you because you already bought in 100% but I am going to try anyway. Just to be clear, obviously I believe what you are doing is better than not doing anything at all so I am not going to compare it to doing nothing. My argument is that what you are doing is no better than just making additional principal payments each month and that this whole velocity banking lingo you are throwing around is smoke and mirrors. Hopefully you did not pay someone thousands of dollars to "coach" you how to do this and hopefully you are not charging anyone to coach them. Here we go: 1. If you owe $225,000 on your 1st mortgage at 3.125% and $30,000 on a HELOC at 3.75% it costs you more interest each month. $682 in month 1 compared to $666 if you just left the mortgage alone. So you are not saving $77 in interest...it is costing you $16 in interest. This is common sense considering you are moving $30k from $3.125 to 3.75%. The fact that one is amortized and the other is simple has absolutely nothing to do with it. It is math. 2. Yes...you save interest by parking your paycheck in your HELOC before sending it out to pay bills. This is where simple interest comes into play because you can reduce your daily balance. Maybe this saves you at most about $10 a month depending on the amount of your paycheck and how long it sits before you send it out. But remember you are paying $16 more interest just by having the $30k balance on the HELOC to begin with. So you are still not breaking even. 3. You are paying the heloc down with the excess cash flow from your paycheck but if we are comparing apples to apples with you just making additional principal payments (not doing velocity banking) then you would also be using that excess cash flow left over to pay down the mortgage each month. To show you all the true exact numbers I need to know what that cash flow amount is that you are leaving in the heloc every month to pay the balance down. Let's make the assumption that it is $2,500 because you said it will take you 12 months to pay off the $30k. But this doesn’t account for any interest expense on the HELOC. 4. Let's go to compare where we are at after payment 37 because you used that as your starting point. Your principal at that point is $192,958 while mine is finally close to where you started at $225,988. But here is what you left out...you still owe the money on the HELOC...if we are comparing apples to apples than any money you pay towards the HELOC I would be using to pay down the mortgage. Since we are not comparing me using that difference towards the mortgage then it is not correct that you use any additonal funds to pay down the HELOC...including the interest cost. So if we compare the mathematically correct way then you would owe $33,468 on the HELOC. ($30k @ 3.75% for 37 months) Your total debt at this point is $226,426 while mine is $225,988. If you want to argue that you would be paying the HELOC off then I should be able to use that same amount to pay off my mortgage balance. 5. Let's instead look at 12 months out when you pay off the HELOC compared to me paying the extra $2,500 a month to principal each month. At the end of 12 months you will owe $215,573 and ready to chunk again in month 13. At the end of 12 months I will owe $216,010. The reason your balance is less is because there is no way to calculate the interest that you owe throughout the 12 months on the HELOC considering you are parking your paycheck for a portion of the month . I used 0% interest in this example to give you the benefit of the doubt...but in reality there would be an interest cost to using the heloc that needs to be accounted for. 6. Let's look out 24 months after you have chunked twice. At the end of 24 months your remaining mortgage balance is $174,071. Again...this is assuming 0% interest on your HELOC because it is impossible to calculate. So you are paying it down by $2,500 a month over 24 months which is the $60,000. Compared to me just making additional principal payments of $2,500 a month for 24 months my balance is $174,959. We can keep on going all the way through the loan...hopefully this was easy to follow along. The truth is you are not saving $22k right out the gate by moving $30k over from a HELOC to pay down the mortgage. This would be true if you never had to pay the heloc back...but you do and if we compare apples to apples while you are paying back that $30k I can use that money to pay down my mortgage and we are going to end up in the same place. The only difference is the interest rate. If you could get a heloc with a lower rate than the mortgage then you can save some interest but it will not result in you saving hundreds of thousands of dollars like all these velocity banking advocates claim. Would love to hear your thoughts.

@@SchoolofPersonalFinance it’s clear you don’t understand and the fact that you claim to had this exact same conversation with a 100 other people shows that you will never understand. All the best to you.

I understand that as a loan officer you would say those things as your training and livelihood depends on people getting mortgages and refinancing when rates drop. It called chasing rates. Closing costs on a new mortgage cans be 5-7000! I have been studying a hybrid concept that involves parts of velocity banking along with parts from other concepts and implemented it this summer. I am in the process of putting together a progress report. Would you be interested in reading it when I’m done?

@@kennycharles6041 Both loans have closing costs. Also, in the example given by this video neither one does a refinance so I’m not sure what you’re referring to.

@@MyProjectWeekend I got a first position HELOC to pay off my mortgage ($156000) in late June of this year. My only closing cost was a recording fee with the county of $14.

2.64% guaranteed for 1year

@@kennycharles6041 who gave u a.1st lein heloc

Thanks Anj!!

Thanks Robert. With interest rates still so low and HELOC’s being adjustable I would caution you against putting the entire mortgage on a HELOC. It definitely depends on your situation and how big the mortgage is but a 30 year loan locked in at 3.25 sounds pretty good to me!!

@@SchoolofPersonalFinance We are looking at refinancing into a 20 year at 2.9%. I think we will get a heloc too since they are offered with no closing costs as long as you keep them open for 3 years. We have other investments and I really don't like the idea of going all in with the velocity banking system. To see any real savings from it would require not using the money we would normally invest in stocks and bonds and dumping that into the heloc but then we would lose interest from investments to save interest from loans and that doesn't make much sense to me. If we get the heloc we will probably just reduce our cash emergency fund by about half and not make any other really radical changes. At least that's what I'm leaning towards right now. Refinancing everything into a heloc makes me very nervous because if intrest rate changes later I don't want to be backed into a corner 5 years from now. I'm not sure I like the concept.

Yeah that’s exactly how I felt and I did what you are leaning towards.

would doing one month chunks accomplish the same as 6 month chunks?

@@SchoolofPersonalFinance interest rates aren't low and Heloc r fixed interest rates

I do this as well. My opinion it is the best way to go for all the reasons you just said. 👍

When u say “chunk” the mortgage...did you first use the heloc total, say 12k to apply to your mortgage first?

@@SchoolofPersonalFinance how are you "chunking" in advance without the leverage? You sound like you are just paying extra principal each month. That does not have the same effect. Build a thorough amortization schedule with a side-by-side variance, then use real world numbers (not estimates) and you will see the mathematics. Plus, the HELOC method doesn't restrict access to that equity if/when it is needed.

💯 I don't plan on doing anything like velocity banking (interesting to learn the idea or concept), but my spending habits changed within a month or two of using a credit card daily. I established what my weekly spend is allowed to be and shoot for a little lower. With debit, it was easy to see a bunch of cash in my checking account and be like, "meh, I got the cash."

Thats all fluff...not data. But yes....if this is what someone needs to change their spending habits then that a good thing.

Statistically speaking, you're a 12 percenter; good for you 👌 The other 88 end up reset for more debt.

Yup, that's the ticket. Its easier to change the behaviors. I teach Dave Ramsey, both are saying "weaponize every dollar against debt" but velocity makes it easier because the behavior change is easier.

Do you recommend doing a " re cast on your loan ?

Just did a new video. I’m gonna continue calling these people out. Velocity Banking is a Marketing Gimmick ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-kjpqYLuftXY.html

It is about knowledge AND discipline. Using velocity banking (depending on your cash flow), you can save $220 a month without changing your lifestyle. Depending on the bank you use, you can put everything on autopilot, just like I do, and get a better result without eating beans and rice every night and telling your kids they cannot go to Disneyland.

I don’t think anyone called it a miracle. It’s just a system of accountability that’s saves small amounts all the time and you reinvest the small gains continuously to save more and more compounding money.

@@obenwahkenobib8899 Duly noted. Unfortunately I have run the numbers and it doesn't actually benefit any more than pre-paying the mortgage early. And the "miracle" idea I was referring to is the idea that many people are promoting online that people can pay off their mortgage within 5 to 7 years without increasing their payments just by using this method, simply isn't true. It's not even possible. Even if 0% interest was charged, the principle is too great to pay off within that timeframe without substantially increasing the payment.

Truth!

What works is replacing high interest debt with lower interest debt AND paying extra every month. Replacing low interest debt (mortgage) with a 12.5% loan would be silly and certainly not cost effective

​@@thomasxxxxxx2345you don't understand interest debt. Lower rate amortized interest on mortgage is way more costly than simple interest on a higher rate LOC. You need to understand this first to understand how velocity banking does make sense.

​@@thomasxxxxxx2345 A 12.5% LOC is not the same as mortgage or card loans. Mortgage is amortized and LOC is not. You'd be front loading on principle to reduce the amount of interest taken each month on your mortgage payments, then using the LOC as a checking account. The LOC should not remain at max credit, there needs to be a positive cashflow over time or it will not work.

Where were you able to get the LOC? Having trouble finding banks which offer it. They keep trying to get me to take a loan.

I need help on this. My mortgage rate is 4.5% and a personal line of credit would be a higher rate than that. Is it still cheaper to get a PLOC and start paying off my mortgage in large chunks with that PLOC?

I think it becomes dangerous when people don’t have a cash flow from doing it and they don’t do the math.

Did you do it exactly the way the VB advocates explain it in their videos, paying chunks out of a heloc? Just curious, thank you.

Except the debt in the heloc pile is cheaper debt

Paying extra money to existing loans allows to reimburse them faster. But using a CC to do so is silly and just costs more money

@@thomasxxxxxx2345 Agreed, I only use my credit card to pay monthly bills and pay them off every month. I always put my focus on paying the lowest amount of interest as possible.

He switches between cc and a loc. cc would not be the best because of the difficulty in paying the mortgage

If you made 10k per month and you had 6k in expenses, would you put the entire 4k you have remaining towards your debt leaving you with no money for emergencies? You'd probably out 1k towards the debt and 3k into savings for an emergency. What if that emergency does not happen for 2 years and the emergency is 10k. You'd have 72k-10 = 62k just sitting there doing nothing and you would have only paid off 24k in debt with the additional 1k per month. The LOC allows you to put the entire 4k extra at the deb without having to worry about having money for an emergency as the available balance of the LOC is your emergency/savings account until the debt is paid off. If you were trying to pay off 30k with an additional 1k you'd probably take 25+ months to do so, but if you did it by paying off the debt via a LOC then depositing your entire 10k monthly income into the LOC and pulling out your 6k expenses you'll essentially be paying off the 30k debt at a rate of around 4k per month. You'd save on time but most importantly on interest. 30k/4k = 7.5 months. Here is the kicker... After paying off the debt in 7.5k you can now save at a rate of 4k. So, if we were to go back to the emergency that comes up 2 years after you begin saving 3k you'll now have 66k in savings at the rate of 4k per month for 16.5 months. 24m-7.5m =16.5 months. Either way, you win...

@@RedRyz3n thanks for that answer. It gives me quite a bit tho think about!!

Thanks 🙏

I think this pandemic has taught people the importance of multiple streams of income, unfortunately having a job doesn't mean financial security. i really appreciate the transparency and giving people a fighting chance during this troubling times.

It’s essential to build multiple streams of income especially in this period of the COVID-19 pandemic, truth is COVID shouldn’t even be the reason you want multiple streams of income in the first place. Think about an investment that makes you money even while you sleep.

@@botejoey5056 You are correct! Multiple streams of income is similar to diversifying your investment portfolio!! Thank you for your encouragement!! 😎

what kind of investment are you into and how do you suggest I start?@ bote Joey I ve been meaning to diversify my stream of income but have been scared to loose money.

@@financeabcs yea I know right

Show me where a person used a 21% interest rate for the strategy. 21% is super high for ANY LOC. It is possible to still beat a 6% amortized loan using a 21% simplified with good cash flow. Do the math.

@@IamThatDudeIt will take some searching but the first several videos I saw on Velocity Banking used the same 21% vs 6% example because they were all using the same book as a source. 21% cannot beat 6%. They use the same incorrect logic, “simple interest vs amortized interest, which doesn’t exist. They mean to say compound interest. I have done the math. It tells me that 21% results in far higher interest than 6%. Can you please show me a scenario where this isn’t true?

@@confusedzentradi 1. If you understand the concept, you don't need me to show you; you can create a scenario by yourself. It is not ideal, but it is possible. 2. In an earlier comment, I pointed out that NO ONE would do 21% interest, nor would they have to. That is an unreasonable interest rate. 3. Cash flow is the key to this entire concept.

@@IamThatDude Thanks for your reply. 1. Many people say similar things, telling me I don't understand the concept or implying as such. I always respond asking them to articulate what they think I don't understand and asking them to provide numbers. So I ask you the same. Noone ever replies because they can't refute my numbers. 2. We agree 21% is exorbitant. You asked me to show where someone used 21% for the strategy. I dug in my RU-vid history back to July 2020: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-ZJGktoOGvPc.html At that time I saw several RU-vid creators using the same example and I found out they learned it from the same book. You can see my long comment on that video. You also stated it is possible to use 21% to beat 6% with good cash flow. That is factually incorrect. If you have good cash flow, you would use the excess to pay down the 6% loan. You would not borrow money at 21% to pay down 6%. Let's forget 21%, as we both agree that is high. Many promoters of Velocity Banking use examples where they encourage people to borrow at a higher rate to pay down loans with lower rates, such as 10% to pay down 5% or exchanging a 4% mortgage for a 7.03% HELOC. The reasons/logic they use are terribly flawed. Simple Interest vs Compound Interest is also a flawed argument. 4% Interest with maximum compounding, called "continuous compounding" still results in lower interest than 7.03% Simple Interest. Some promoters even say that interest rate is irrelevant, regardless of how high it is, because somehow, the magic of Velocity Banking makes interest rate irrelevant. Don't hate on me, that is THEIR absurd commentary, not mine. In general, in an apples-to-apples comparison, higher rate results in higher interest. This is objective reality. 7.03% on $10,000 for six months results in more interest than 4% on $10,000 for six months. All variables the same, except interest rate, which is the variable in question. 3. Cash Flow is very important. However, many Velocity Banking promoters clearly do not understand Cash Flow or what it is. They often espouse that paying down a credit card balance, to make more credit available to borrow, then charging expenses using that available credit, means that you have increased your Cash Flow. You have, in fact, increased your LIABILITIES, not Cash Flow. Available credit is not Cash. Using credit to pay for groceries does not increase Cash Flow. It creates a Liability that you have to pay later. Cash Flow = Income - Expenses. If that number is positive, it means you have Positive Cash Flow and using that to pay down debts (mortgage, credit cards, etc) is a great idea. However, the way that Velocity Banking promoters explain Cash Flow is wildly incorrect. Thanks for being civil in our discussion. Alot of people respond with vitriol to my comments. Several RU-vid promoters of Velocity Banking have banned me from commenting, because they cannot have simple discussions with actual facts and numbers. If you are interested, I can share my calculations/spreadsheets with you.

@@confusedzentradi, great reply. Let's focus on two things: **Let's use “amortized” and “simple” the way they are used in the video, for the point** 1. $20,000 at 10% simple, with a $2000 cash flow, will be cheaper than a $20,000 amortized 10 years at 6%. 2. Having a revolving line of credit is more beneficial than paying extra on a loan and not being able to use the money again. **Using credit cards to cover daily/weekly expenses helps keep the interest rate down through the month, and cuts payoff time down.

Thanks Jeremiah!

Hey James thanks for your comment. The entire point I was making is that you can just use the extra cash flow...In this case $2000 a month and you have the same results. You still save the same $45,000 dollars of interest. There is no savings with velocity banking unless you are using a loc with a lower interest rate. You can always have a loc available to you if you need it.

School of Personal Finance no you’re an idiot. You are missing something, a brain. Plus your math is flawed.

Awesome!!

Congrats. However, if done correctly velocity banking would have gotten you there even sooner and with less interest and money tied up along the way.

Awesome!

Cedric, congratulations on becoming personal debt free! I am assuming that you are cash flow positive, have a good credit score, and would like to decrease that 7 years to 4 or 5! Would you listen to a plan that could do that even if Dave did not approve it? You seem like a very reasonable person and I would like to share my hybrid system with you!

@@Sci-Fi_Fan296 That’s true and the hybrid concept I am using is even better. Want to know more?

The velocity banking concept was created for those of us in the US who do not have options like yours in Australia. I was amazed that having a 30-year mortgage is not really a thing in Australia.

In the US it's called the All In One Loan. CMG Home Loans

You are 100% correct. It's not that hard to pay off your mortgage early if: 1) You did not buy too much house versus your ability to generate income; 2) You are wise with your finances and know where every dollar is going (create and maintain a budget); 3) You have a consistent source of income (job, career, business - not "gig"); 4) You have an emergency fund that equals six months of salary so that emergencies do not cause you to stop paying off your mortgage; 5) You conduct recurring additional principal payments each month; 6) Most important, track everything. Your money is your number one business activity - you have to treat it as one. I created a spreadsheet (Excel) where I track all my finances, including a tab that tracks my mortgage and replicates the amortization schedule and shows my remaining balance (principal, interest, etc.) with each payment. If you are not prepared to do these things, you are not ready for a house and need to wait it out.

Thanks Diane!!

Great video, it reminds me 8 months ago, when I was so poor and broke that I could barely afford a meal a day. I remember that I had to take the biggest step in my life when I invested my last income with a specialist trader who works with a Forex trading company. It may seem little, but it took courage to know that investing was the right thing to do at that moment. Today, my small investment of just $ 1000 raised more than $ 150,000. Honestly, to succeed, you need to take a big step. That's where it all starts. Forex is also a good investment.

@@annaalessandro376 Honestly, I'm really excited about that. Great success can be achieved through investments. I am a great example.

@@annaalessandro376 Hi Anna, I'm really motivated by your story. But I'd love to know if you could give me any information on how I could reach the professional forex trader you worked with?

@@annaalessandro376 I had interest in forex but I was discouraged after I lost over $11,000 doing that on my own😔

That's simply not correct. If you pay early, it goes to the mortgage. This is legally required.

That is awesome!! Congrats! Yeah man the 0% credit is great as long as you can get them and use for expenses with no other fees. It is important to understand that your savings is just the spread on the HELOC and your credit card. So while it helps...that is not the reason you paid off $88k in debt. You did it because of all the other reasons you mentioned. Motivation, focus, being more frugal and throwing everything at paying it down faster. That is where velocity banking shines. When it forces you to reevaluate everything you are doing and then optimize it. BUT it is NOT the interest savings from doing velocity banking that made your $88k go away.

School of Personal Finance Thanks! Yes, it really is the mindset that I have since starting this strategy because now I know where every dollar is going... Awesome vid as usual🤙🏾

👍🤑💰🙏

Thanks 🙏👍🤑

Velocity banking is absurd. You don't need to open up a line of credit to commit more of your paycheck to pre-payments on your mortgage. Glad you didn't go for the miracle cure 😊

Great mention!

How do you transfer equity?

@@opstech2008 with a HELOC you have the ability to move money in and out freely, and my policies are linked to my HELOC account. So as I pay down my home, I have the ability to pull the equity and put it into my policies. The policies are where you want the equity because its ever increasing, not like real estate.. gradually real estate will tick up, but much slower. Once money is in the policies its just as liquid.. like a line of credit. The beauty of it is this, it increases every year. The increase is dependent on how much you put it. Typically after year 3 you put money in, and it grows by a bigger number.. you get to years 10,15,20,30 it grows by multiples ( you pay in 1$, it grows by 2,3, or 4)

Nice!👍 I just posted a new one on Velocity let me know what you think Velocity Banking is a Marketing Gimmick ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-kjpqYLuftXY.html

I am using a hybrid concept and it has simplified my finances significantly plus is reducing my debt much more quickly than any method I’ve seen before! Want to know more?

Exactly!! Thanks Dan

You’re not wrong but it depends on what your financial goals are.