Let’s assume that you just bought a house and took out a 30 year conventional $250,000 mortgage at 3% interest. At closing, they showed you that you would end up paying $129,443 in interest over the life of the $250k loan. Isn’t that crazy?
Let’s also assume that you can save up to $500 per month. Instead of putting that $500 in your savings account, you decide to pay off your 30 year mortgage early. To calculate how much you would save, you decided to subscribe to my monthly newsletter for a free copy of my Loan Amortization Table.
With an extra $500 per month, you would pay $70,199 in interest and pay off your mortgage in 17.3 years. That is a savings of $59,244 over the original loan estimate. What if you want to pay it off faster with the same $500 per month? That is where Velocity Banking comes in! With Velocity Banking, you would use a line of credit (Home Equity Line of Credit, or a 3% Balance Transfer to a 0% introductory MasterCard Credit Card) to pay $3000 towards your loan now, then pay $500/month towards your $3000 debt. With 3% APY on a Home Equity Line of Credit, you would only be charged at the most $7.50 per month in interest. Here is how chunking $3000 every 6 months would look.
You just saved an additional $5,077 in interest and took another 1.4 years off your mortgage. That is what Velocity Banking can do for you. Velocity Banking is more than a strategy to pay off your loan sooner. It is also a technique that can help you reduce your loan costs.
If you have more than 20% of your equity paid off, you can qualify for a HELOC (Home Equity Line of Credit), allowing you to borrow up to 85% of the difference between your loan debt and the value of your home. If you owe $250,000 and your house is worth $320,000, you can qualify for a $59,000 HELOC at a low 3 or 4% interest rate. HELOC’s typically have a draw period of 5 to 10 years and they behave like a regular checking account. You can easily move money in and out to pay your bills using your HELOC, or pay off your HELOC using your paycheck.
Velocity Bankers replace their savings accounts with HELOC’s. This is how the process typically goes.
- Open a HELOC Account
- Transfer all of your money out of your savings accounts and pay down your mortgage. This step is not necessary, but it will let you pay off your loans much faster. Use the HELOC for any emergency expenses you may incur.
- Close your savings accounts
- Borrow a chunk of money from your HELOC (Something you can pay back within 6 months). $3000 for example.
- Apply $3000 towards the principle of your loan or mortgage.
- Got your paycheck? Transfer ALL of your paycheck into paying down the HELOC. Got your utility or phone bill? Transfer money out of your HELOC to pay for your bills. Any “Savings” you get each month is actually reducing how much you owe on your HELOC, allowing you to pay it off within months so you can borrow $3000 again to pay down your mortgage.
- Repeat the process until your home is paid off.
Velocity Banking Process for those who rent, but want to pay off Student Loan Debt
- Sign up with a 0% Introductory MasterCard (Not VISA). VISA does not let you do what this list outlines. Mastercard’s usually have a 3% Balance Transfer Fee, where you can get an introductory rate of 0% interest for 12, 18, or 21 months.
- Transfer all of your money out of your savings accounts and apply it towards your student loans. Use your credit cards for emergency expenses. This step is not necessary, but it will let you pay off your student loans much faster.
- Transfer a chunk of your student loans to your MasterCard using the “Balance Transfer” feature offered by your credit card. You will pay a 3% fee, which is better than 6-12% student loans typically charge. Transfer just enough that you are comfortable with paying off in 12, 18, or 21 months.
- Got your paycheck? Transfer ALL of your paycheck into paying down the credit card. Got your utility or phone bill? Use your new MasterCard to pay your bills.
- Repeat the process until your MasterCard is paid off.
- After the intro offer is over, apply for another new 0% introductory credit card and repeat the process until your student loans are paid off. Citi Bank offers great credit cards for this purpose.
