What is Velocity Banking and How to Utilize it For Your Clients?

People fear paying too high interest on their mortgage loans and looking for options to pay off their mortgage loans faster. Velocity banking is the preferred method to pay mortgage loans faster. In this blog post, you will learn and understand what is velocity banking?

What is Velocity Banking and How to Utilize it For Your Clients?

Understanding Velocity Banking

Velocity banking refers to using a home line of credit to pay down the primary mortgage and save on amortized interest. On the other hand, the HELOC (home equity line of credit) strategy leverages disposable income to pay off the mortgage. 

How Does It Work?

HELOC uses a primary expense account instead of a checking account. It removes the need for a savings account, and all free cash flow goes toward a mortgage account. Any significant debt payments or bills are paid into this account. 

For example, you deposit your entire paycheck into this primary expense account and withdraw the money to fulfill your daily needs. The remaining balance goes towards paying off the mortgage and lowering the remaining loan amount. 

The best way to utilize velocity banking is to pay high-interest debt first by taking a line of credit, which will help save a significant amount on interest.

Now that you know what velocity banking is and how it works, let's understand the benefits of velocity banking.

Benefits of Velocity Banking

There are many reasons why velocity banking is becoming popular in real estate investing. First, however, here are some benefits you should know. 

Monthly Cash Flow Increase

Velocity banking helps in tracking your debt obligations in a better way. With passing months, you will have more cash in hand to save or spend elsewhere. 

Less Interest Payment 

With the velocity banking strategy, you pay your mortgage faster and pay less interest than what you would be paying without the HELOC strategy. 

Decrease in Stress levels

Many people are worried about their finances, and paying debt is a stressful activity for many. Velocity banking gives you more control over your finances, and you should experience decreased stress levels as you reduce your debt every month, and soon you will be debt-free. 

How to Utilize A Loan Analysis Calculator for Clients?

The velocity banking strategy may not work for all clients, and you need to have alternate approaches to help your clients pay off their mortgage loans faster. You can use a loan analysis calculator while developing your velocity banking strategy.

The loan analysis calculator shows how borrowing from a third party can help you reduce your loan balance and simultaneously reduce amortized interest. The calculator can show how much you can save on a 15-year mortgage loan and how much extra you will pay on a 30-year mortgage loan. In simple words, the loan calculator can help your clients make an informed decision about velocity banking and mortgage repayment.

Paying off a mortgage faster can help you get debt-free faster and improve your cash flow in the future. In addition, planning a velocity banking strategy with the help of a loan calculator will help you present a clear picture to your clients, and they will be able to make an informed decision.