Owning a property or house is a long-term dream for many families all over the world. But it often gets delayed due to the fluctuating price range of properties. To overcome these struggles, banks offer various loans, such as home loans and property loans. Studies show that home and property loans sanctioned in 2021 were up to 76%, which was 21.9% more from the previous year.
It’s often considered better to close the loan with the total amount as soon as possible to reduce extra interest. But while families are still working to pay off the loan, it’s important to consider: What is velocity banking? And how does it work in lowering interest? It allows consumers to pay down the mortgages in a short period. This strategy used for a quick mortgage payment involves Home Equity Line of Credit (HELOC) banking.
HELOC Banking Strategy
Velocity is a strategy that uses a line of credit as your primary account, and this credit account is called HELOC. It acts as an expense account instead of a regular checking account. It’s not necessary to have a savings account with a HELOC account as all the free cash flow will be taken to the mortgage.
How Does Velocity Banking Work?
Velocity banking is a method in which you use your credit line as your primary account and return your loan (usually a mortgage) in one big amount. The idea is that using a credit line would not only allow you to better manage your cash flow and save money. It will also assist you in repaying your mortgage.
The idea behind this strategy is to use debt to pay it off or leverage debt to invest and make money. This helps use cash flow and extra funds to cover the expense and pay the mortgage.
Benefits of Velocity Banking
Although the velocity banking technique is popular in many countries outside of America, it’s becoming more famous in the U.S. The reason behind this is that it offers multiple benefits for the loanee:
- He or she can close the loan in a short time by paying a significant amount with HELOC
- As the loan period is less, the interest rate is reduced
- Monthly cash flow increases as debts are lowered
- Stress is alleviated as it’s possible to pre-close the loan
- He or she can focus on additional savings immediately after pre-closing the loan
In the world of banking, all methods and plans are not suitable for everyone. So before jumping into velocity banking, it’s necessary to understand: What is velocity banking? Similarly, one must consider a few other factors before opting for velocity banking to pre-close the loan and reduce the interest. Factors include income, expenses, debt, and cash flow. Choosing a loan method without considering these factors may make it difficult for you in the future.
Analyzing income and expenses is not only valuable for mortgage banking but also for any kind of loan. By keeping track of your payment and bills, you can easily manage the loan repayment and daily expenses. And by keeping track of the debt and cash flow, you can confidently choose a loan method that will help you pre-close or close the loan on time.