According to the U.S. Census Bureau, the current national homeownership rate in the United States is 64.8 per cent. This is an increase from the previous year’s rate of 63.5 per cent. One important reason for the rise in homeowner rates is that the majority of houses and properties are bought with a home loan or property loan.
Though most people understand the fundamentals of housing loans, many have are not as familiar with the velocity banking strategy.
What is the Velocity Banking Method?
Usually, the first thing people consider when applying for a loan is the interest rate. And it’s a known fact that the interest rate is associated with the type of loan and the loan period. So in order to reduce the interest rate, it’s advisable to pre-close the loan.
Velocity banking is a process that allows homeowners to pay off mortgages quickly. This method is also referred to as Home Equity Line of Credit (HELOC) banking or mortgage banking.
How Does the Strategy Help a Loanee?
Though velocity banking is new to many people, it’s increased in popularity in recent times. That’s because the strategy offers various benefits in terms of loan payment options:
- Opening a primary account with HELOC can help home buyers quickly repay mortgage loans
- As the loan amount is pre-closed, a large amount is saved in interest payments
- By paying mortgages, debt is lowered, which increases the flow of money
- You can quickly start your savings by pre-closing the loan
How Does Velocity Banking Differ from Regular Payment?
In most cases, home buyers pay off the loan amount month by month. And it takes a lot of time to repay the amount. But with the velocity method, one can repay a large amount of mortgage loan at once.
It works by creating a HELOC line of credit account. The HELOC is considered the primary account. This allows you to pay a huge amount of the debt. The line of credit will allow you to use the surplus cash flow to cover costs, while simultaneously contributing to your mortgage repayment.
Key Notes on the Strategy
An overlook of this strategy seems to be very convincing:
- The wisest financial decision is to pay off your mortgage sooner rather than later
- The most crucial component in paying off your mortgage is saving on interest payments
- The equity in your home counts as savings, and a HELOC is an excellent way to access it
Wind Up
It’s best to study the velocity banking strategy clearly before opting for it. It’s also important to consider a few other factors before choosing this strategy. Above all, remain future focused when it comes to your income, expenses, debt, and cash flow. This will help you analyze if you’re actually ready for a mortgage payment.
Though the HELOC strategy helps in reducing interest rates and pre-closing the loan, it may work for some but not for others. Most financial experts advise to take velocity banking plans only after having a proper plan to handle the cash flow.
