https://www.youtube.com/watch?v=YmwHe1SC70A
Want to pay off your house fast? Considering Velocity Banking? You’re not alone.
So many people are motivated, whether by culture, values, or something else, to pay off their house as quickly as possible.
This desire is completely normal. But it can leave you vulnerable to some pretty big unintended consequences.
When we’re emotionally driven to do something, we can be attracted like moths to a porchlight, to anything that promises that thing.
When it comes to paying your house off fast, one such “porchlight” is Velocity Banking. This widely promoted strategy uses a HELOC to replace your mortgage and pay off your house, usually within 5 – 10 years, and save interest.
The problem is that we can be misled when the messaging hits all of our hot buttons, even if it doesn’t entirely make sense to us.
Save time, save interest? Sounds good, let’s go, right?
But unfortunately, math can be used to show whatever story you want, depending on what information you skip over or leave out altogether.
When the claims don’t add up, but we’d like them to be true, we reason that someone else already figured it out, so we can just trust them.
Unfortunately,
The lie is easier to tell than the truth is to explain.Todd Langford
But when something doesn’t add up, it’s time to dig in and ask questions. Your questions are likely more valuable than the answers you find.
When it comes to your money, you deserve real answers so that you can make informed decisions.
That’s why we’re digging into a case study. We’ll answer the question: What is the fastest way to pay off your house?
So, if you want to have the most financial control while paying off your house, tune in now!
The Case Study
We’ll walk through Truth Concept’s report by Todd Langford and Elizabeth Hagenlocher, Are Accelerated Mortgage Programs Using A Home Equity Line of Credit Effective?
The full report is available for you at the bottom of this article.
The report analyzes a Velocity Banking example where a person exchanged a 30-year mortgage with 25 years left for a HELOC, paid the house off in 10 years and 8 months, and supposedly saved $217,874.12.
In the podcast, we compared and contrasted four options:
Paying the existing 30-year mortgage with minimum paymentsUsing a HELOC, which included extra paymentsMaking extra payments on the existing 30-year mortgagePaying the existing 30-year mortgage with minimum payments and storing the monthly surplus in a Privatized Banking system
Here is what we found:
A HELOC Is Riskier Than a Typical Mortgage
The crux of Velocity Banking is that you pay off your house fast by making extra payments. But, rather than making these additional payments on an existing mortgage, you swap out the mortgage for a HELOC.
The stated advantages for using the HELOC over a typical mortgage are that you reduce interest, build equity faster, pay less volume of interest, and can take the money back out if you need it.
Risks of the HELOC
However, a HELOC is riskier than a mortgage, for these reasons:
Variable interest rates creating potential open-ended rate increasesHigher interest rates than mortgagesPotential increasing required payments
And when it comes to accessing your equity, you may not be able to take your money out, even with an existing HELOC
Variable Interest Rates
With a mortgage, you typically have level, fixed interest rates for the term of the loan. And fixed interest rates mean you have a level payment throughout your mortgage, so it’s easy to plan for that known expense.
With a HELOC, you don’t get that consistency.
That’s because most HELOCs have a variable interest rate that is pegged to the prime rate. And the prime rate is based on the federal funds rate, which can change every six weeks. With a HELOC, you’d always be hoping that rates would stay low,
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