Any Velocity Banking advocates on here?

Nope. Why not just put your extra income each month toward the mortgage, if you want it paid off early. I’m fine w mine at 3%, no worries about paying it off sooner than the remaining 12 yrs. My extra cash is going into investments and retirement accounts, not paying down the mortgage.

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-“chunk” payments chip away at the loan balance much more quickly than additional payments do, so each “normal” payment ends up going more towards principal, and therefore building equity much more quickly.

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Think about this more carefully: if you want “chunk” payments, you can save your cash for 2-3 months and pay it as a lump sum. No dang different than a chunk of cash from the HELOC.

You are heavily leveraging your primary residence...a job situation change, major illness, unplanned pregnancy (it happens), major household repair (roof, sewer, AC, heat) means that cash you’re diverting to pay the HELOC back is now needed elsewhere. What sort of liquid cash reserves do you have?

Is a second job, overtime, or changes in budget/lifestyle a better choice to increase your cash flow? Maybe. Borrowing your way out of debt (mortgage) is a risky proposition, and I can think of a whole slew of common-enough occurrences that make the scenario a poor choice for my level of risk tolerance.

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I’ve been learning about VB the past couple of months and I’m really excited to try it at the start of the new year.

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I’ve admittedly am just learning a bit about it myself since I’ve only just bought my first home so it was never relevant.

Now maybe I’m missing something, but from my understanding, assuming that there are no issues with the extra complexity, cash flow, cash reserves, and no unexpected financial setbacks (or extra costs/fees associated with the LOC), this method really only makes financial sense if the HELOC rate is no greater than 25% of the mortgage rate, and for practical purposes, obviously far less.

So if one has a 4% mortgage rate, then anything <= 5% HELOC rate CAN be used to pay off debt more quickly and a lower real rate.

That being said, HELOC loans are variable interest rate loans, typically based off of the prime rate, which is based on the Fed discount rate. And just in the last year, the prime rate has risen from 4.25% to 5.25% and it (like the fed rate) is expected to increase more through 2019.

Therefore, if rates rise by some percentage, then the HELOC rates will typically rise by the same (or very close to) amount. And it seems an increase is widely expected, and another 1% rise would not be unexpected whatsoever. In that case, whatever financial benefits it possesses today, would be less moving forward.

So unless the mortgage rate is high enough that there is enough of a buffer zone that rising HELOC interest rates can continue to rise and still make it financially worthwhile (or I am missing something), 2019 is not going to be the best time for this to work well, and far less useful than it would have been over the last couple of years.

Beautiful explanation.....this is a slight of hand manouver, IMHO, and most people considering it won’t actually run the numbers to determine what, if anything, they will save with “velocity banking”.

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I guess the main focus is the cash flow mindset.

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I don't understand what this means. Unless you're extending the repayment on the HELOC, you're not freeing up cash flow--which would only increase the interests costs of the HELOC--since it's either going to the mortgage or the HELOC.

In fact, you're actually doing the opposite; you're tying up cash flow to pay down debt, either way you do it. That may be what's best for someone, but this seems the fundamental opposite of a "cash flow" mindset, and just seems like a gimmicky phrase.

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Also, being able to use leverage.

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And what do you mean by leverage? Are you going to use the debt to invest in something, or at least pay of some high interest debt? Because taking on debt to pay off the debt the new debt was based upon, at essentially the same return, is just taking on the risk of the leverage and compounding it by potentially becoming Over-leveraged on the same debt.

I just don't understand this. This whole things sound a lot like someone using a bunch of catchy business terms, to sell an inefficient and potentially risky idea with little real gains.

And I can think of a number of situations where taking on a HELOC and make a "chunk" payment or two would have a real return (e.g., maximizing a low introductory rate, paying off PMI, etc.). But the more I look into this the more I'm convinced that this is an idea that has some merits, but as always, has been packaged into something more like a scam by those selling it (not you).

Well this whole topic fascinated me that I spent way too many hours messing around with spreadsheets, reading boggleheads and bigger pockets forums, and eventually ended up learning that Clayton Morris, the former Fox and Friends weekends host who is a big advocate of this, seems to have ripped off hundreds if not thousands of small time investors in some turnkey/rehab rental property scheme. A true sleazeball.

This has also made me appreciate Dave Ramsey and his followers approaches to paying down debt much more, because even if I don’t believe it’s always best, at least the process is just basic and transparent logic and math (even if the math suggests putting it elsewhere).

Anyways, after reading people advocate for both sides of equation, I’m more convinced than before that this is not anything than a unnecessarily complex method to do what Dave and many others would recommend: paying extra on a mortgage. And just like that and any other method, there will be specific situations where it works better than others, but overall you’re going to save save about the same and pay it off about as fast if it goes as planned. But with the added risk with more debt, higher rates that can rise much more, specific fees that banks can impose (close an account to early), overexposure, and the legal exposure of a 2nd mortgage, the downside risk is FAR greater than the upside, even if both are unlikely.

I also learned that this scheme, which has taken on many names and many scams to sell it (some MLM’s) was quite popular in the early 2000’s, and was originally models off of this “Australian Method” which is occasionally referenced by advocates to this day.

What is interesting about that, especially from those who are still mentioning it, is that the Australian government had to shut down a bunch of people pushing it and scamming people BACK IN 2004.

The Sydney Morning Herald: End of the Line

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The Australian Securities and Investment Commission (ASIC) has shut down loan calculators on more than 100 Australian websites in another move against line-of-credit home loans that use false advertising to suck in borrowers.

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"Brokers offer them as 'mortgage reduction services' and that's a total hoax. But some mainstream financial services firms have also been profiting from the fact that consumers are mislead over these loans."

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On line-of-credit loans, the guidelines state: "It is misleading to say that a line-of-credit or offset account product can be paid off more quickly than a a standard product if this result can only be achieved by making larger or more frequent payments.

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Now there are probably some minor differences here and there between their lending rules and calculations, and the advocates have changed their ways of advertising it (like this whole checking account concept, which is just paying back the loan) but the principle is still the same.

Now maybe I’m something, but I suggest checking out Reddit, Bogleheads, and Bigger Pockets, etc., because they have far more knowledgeable people than me discussing it. However, they seem to share the same conclusions, by and large, especially Bogleheads. And those refuting them, seem to always resort back to those same talking points (simple interest, it’s a checking account, etc.), but most don’t seem to be able to explain how that is any functionally different than paying down the loan. It reminds me of those who harp how decentralization in crypto/blockchain is going to change the world, but fail to explain why it’s so much better and why the world even wants it for the most part.

I sure wrote a lot here, but I enjoyed learning about it. I would recommend just paying off your mortgage as quickly as you feasibly without taking on more debt (unless it’s an amazing offer or something with no catches) if paying it off is that important. And you always have the option of opening a line of credit if that safety net would give even more peace of mind (without any catches). You seem to be in a good place financially so I think you’ll be good regardless.

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I guess the main focus is the cash flow mindset. Using cash as velocity and credit as currency. Also, being able to use leverage.

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Curious to know if you have began using this strategy as you stated in your OP, and how it is going for you ~8 months in...

I am intrigued.. maybe not so much about paying off the mortgage early.. could be any debt like a car loan or student loans. But just the mindset, like you stated. Using a HELOC as currency. No more savings accounts. Having every available dollar working for me in some way paying down a debt at all times. I am also interested in using this strategy in conjunction with churning 0% interest credit cards.

Still reading and learning about it. Obviously, there are several risks as already stated in this thread.

I am intrigued by the idea of not having a savings account and constantly having every available dollar at work. But I do agree that the risk seems too much for the reward. I would really love for the OP to chime in though to see how it is going for him.

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Seriously, and with all due respect, don’t involve the place where you lay your head in financial schemes

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The key word here is schemes as opposed to investments. I opened the HELOC to invest in rental properties..