Velocity banking is commonly used as a personal finance strategy that uses a home equity line of credit (HELOC) to leverage disposable income and pay off a principal home mortgage faster while avoiding amortized interest from the mortgage.
The idea behind this velocity banking strategy is to use cash flow and additional funds to cover costs and work toward paying off the mortgage using a line of credit.
Although it could be beneficial to certain individuals’ financial situations, it isn’t the best choice for everyone. Before applying for a HELOC, it’s extremely important to do your research and decide if it could yield an advantageous financial outcome for your specific situation.
There are a few reasons people are becoming more interested in using velocity banking. Depending on an individual’s financial scenario, the most significant advantages of leveraging a HELOC could include:
Cons of Velocity Banking and Opening a HELOC
A line of credit can be a slippery slope. Many people who open lines of credit end up getting further into debt. Additionally, current mortgage interest rates are relatively low, so borrowing money to leverage a home loan while putting extra cash in your investments or retirement funds will likely yield a more significant return right now.
Is Velocity Banking Effective?
While using a velocity banking strategy to pay off your mortgage can help you do so more quickly, it’s not for everyone. It can be stressful and complex managing the account, and there’s no guarantee you’ll finish with less interest owed. If you’re looking for a way to pay off your mortgage faster, speak with a financial advisor, and take your time to map out potential financial outcomes before opening a HELOC.