Velocity Banking-The Good, Bad, and Ugly
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- Опубликовано: 19 сен 2024
- A fellow real estate investing RUclipsr, Denzel Napoleon Rodriguez, reached out to me in a comment on another video, asking me to critique one of his videos. I asked him which video he wanted me to watch, and he gave me this link: • How To Pay Your Mortga...
For the most part, Denzel focuses a lot of his attention on the concept of velocity banking. I've had several other people reach out to me and ask to discuss velocity banking. Seeing a trend, I felt this would be a good opportunity to work "with" Denzel and help you, my audience.
My opinion on velocity banking is that it can be a quick way to pay off your debts, including your mortgage, but it can also be a way to open yourself up for failure by adding more debt to the pile you're already trying to destroy. Having said that, if one is determined, dedicated and disciplined, that person can be just as effective, or moreso by just applying all their leftover income after each paycheck toward their debts, including their mortgage.
Here's the excel spreadsheet I created for this video: docs.google.co...
If you want to enter your own numbers into the equation, feel free to by simply downloading a copy onto your own computer first, then making adjustments.
If you have any questions, concerns, or cheap shots, please comment down below! I appreciate single clicks on the like and subscribe or double clicks on the dislike. ;) Thank you for watching!
To see my other channels, go to www.WatchBobOnY... Our discussion may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.
This doesn't sound right. I think you should look at the actual numbers instead of lumping the entire loan into one line item. If you are at the start of your mortgage, one payment of $1000 could be $100 to principle and $900 to interest. If you had an extra $1000 to put into the mortgage you would slash off a lot of interest payments, but if you VB $20,000, then you would jump WAY past your extra contributions. The VB loan would cost $320 per month at an insane rate of 20%. That is still going to cost you WAY less than the mortgage interest payments. So I don't think it's about which is faster but rather which saves you more. VB definitely saves you more.
You're incorrect. 20k owed on your loan at 3.5% interest is $58 per month. So you just paid 20% interest on 20k that you could have paid $58 on. That's foolish. Don't borrow at a higher interest to pay down a lower interest loan. That's just dumb! If you can pay $20k off in 6 months on a loc, you can certainly pay it toward your mortgage.
@@RealEstateInvestingUnmasked Ok, but again because you are ignoring numbers and trying to jump to the end, you are missing the reality of what is happening. You are skipping 20 payments of $900 interest, which is actually $18,000 on your $20k in the mortgage. I think you are confusing amortized loans with equal payment or interest only loans. In amortized loans, all of the interest is charged up front at the start of the loan. Hence why it makes sense to get through that portion. Would it make sense to VB when you are in the final 5 years of the loan? No, definitely not. At that point you are correct in that the interest payments would be low.
Here's the difference between what you're saying and what I'm saying:
You're stating that by paying a lump sum at the beginning of the loan, you'll save over the life of the loan; therefore, in your scenario, you believe the interest you pay in the line of credit over the short term is worth it... because you're comparing $900 in interest compared to the interest you would have paid on that 20k over the life of the loan.
I'm saying that if you are paying the line of credit off in 6 months (that's what most vb'ers preach), and paying 900 in interest during that time, you should save the hassle from using the loc in the first place, because if you paid that same 20k on top of your mortgage payment, you'd only pay about 350 or less in interest vs the 900 you'd pay your line of credit during the same time frame. After you have paid the 20k during the exact same 6 months you would have paid off the line of credit, you'll still save the exact same 18k you're alluding to saving over the remaining 29.5 years. You see, you're too busy comparing the wrong numbers. You're comparing the interest of a line of credit vs 30 years of interest. That doesn't make a case for vb over my suggestion, it just makes the case that you should pay your mortgage off earlier. Then the question is, what's the best way to do it. To borrow at a higher rate than your mortgage's interest rate is asanine if you'll compare apples to apples.
@@RealEstateInvestingUnmasked Yeah the problem is you are attributing high interest rate in LOC with more interest than the mortgage, which is absolutely not true. If you reread my numbers, it is $900 per month in interest in the mortgage but only $320 in the LOC. As long as the amount of interest in the LOC is less than the mortgage, it is undeniable that the LOC charges less in raw dollars. But I also agree that at some point this will no longer be the case and then it makes no sense to continue using the LOC to pay the mortgage down. So yes, if you do it the whole 30 years, it costs more using the LOC. But no one would do that. That's stupid. You have to stop when it makes sense to get a lower effective interest rate on your mortgage.
The 320 in the loc is only on the 20k. That means you have removed 20k from the principal. That means you spent 320 to save 58 that would have been charged on the 20k portion of the loan. The remaining 842 in interest is still being charged on the remainder. By paying 20k down as a chunk, you don't get to skip out on the 900 in interest each month. The mortgage company still charges 1/12 interest on whatever the principal balance is. Therefore, the comparison should strictly between the interest charged on the amount you're paying off over the same period of time it takes you to pay off your loc chunk payment. ie. 20k paid over 6 months at the loc's interest rate vs 20k paid over 6 months at the mortgage's interest rate, because everything else in your equation outside of those 2 things makes the argument apples and oranges.
An honest view finally. One of the lessons I picked early in life was to save maximum before marriage. And by God it was one of the best one. I used to save two thirds of salary at that time. I invested the same in a diversified MF. My patience was tested in year 2017, when my portfolio was down 30%, but still I continued investing. After foreshortening, I used to save on an average 90% of my salary (crazy right!), but my first big break came in 2019, with the help of a trade analyst, I had accumulated enough money to retire and own a house which has been my dream! I booked profits and reinvested according to change in objectives I am living a happy and satisfied life! Thanks for the content. Keep them coming!
That is so awesome! You're one of the FIRE folks! (Financially Independent, Retired Early) You did it right! It's not easy to have that much discipline, but it's not impossible, either. I applaud you!
It’s Individual stocks for me since they offer more flexibility because I can pick and choose the stocks that fit my financial objectives and tolerance for risk. For example, I could implement a diversified investment portfolio with dividend-paying stocks, growth stocks and stocks of foreign companies.
However, it has been easier to invest in the stock market under Hestrel, make the same returns or better, and not have to deal with having a bunch of irregularities that have been taken care of.
I indeed did as you said and reached out through his webpage. I even got a hold of his whatsap for help
+4 0 3 7 1 7 0 0 3 1 4
I’m indeed glad to have taken you advise on here, and started trading with 5k capital.
Finally someone with a functional brain. Thank you so much Sir.
You are very correct, the best way to pay your mortgage is by saving enough for an emergency fund, and than paying the extra payment on the principal with what ever money you got left after expenses 👍👍
Look - it’s basically getting an extra cushion (LOC) to use against Amortized Interest on a loan. You have to understand the difference between Amortized and Revolving Interest. When you understand this it is explained.
Just use the basic Loan Amortized spread sheet on Excel and plug in the Chunks of payments from the LOC and watch what it does and compare it to doing it the traditional way of sending what you have extra every month. Velocity takes way much more extra Interest off right away and focuses on the principle and makes your next following payments go towards the Principle and less towards interest.
Do the Chart and plug in the numbers. Plug in the Chunk you would put down on the principle and give yourself the number of months it would take to pay the LOC back and continue it again in the next cycle.
Now plug in the numbers for the traditional way of paying off the loan and see how long that would take and how much Interest is paid .
Then make another follow up RUclips video of the results.
I fully understand what you're saying and have done the comparisons. Amortized and revolving interest are calculated identically. It's the way the principle changes that is different. Many claim a difference, calling revolving debt simple interest, but that shows they don't understand what simple interest is. I've done a video on the difference. I've also contacted a line of credit showing that interest is calculated on a daily average, instead of calculating the monthly interest on a traditional mortgage. If someone wants to use velocity banking you pay off their mortgage, I say more power to them, I just prefer the less complicated, less risky, most often faster method. Velocity banking pushes a borrower mindset. Paying from your income pushes a debt free mindset. I prefer the latter.
Real Estate Investing Unmasked I would rather build my credit using velocity banking..
I absolutely agree... I am not an expert with the Velocity banking (VC) but I can say based on several VC video I have seen (e.g. Mike Adams and Denzel R) it works. Honestly, I believe a lot of these guys who are pretending that vc doesn't work are really "scamming" people bc they really know it is the best solution (outside of hitting the lottery) with getting out of debt “fast”.
I really appreciate this video. Honestly speaking, all velocity banking does is refinance higher interest debt. It seems much easier to refinance the existing debt, and then apply your “cash flow” to the principal. The risk with the additional leverage is not worth the reward
Simple numbers. Banks aren't stupid they are not going to give u a free lunch. Ur exactly correct
Thank you thank you thank you!!!! I watched your video the first time and didn’t quite grasp everything. The second time I watched it was like a light bulb went off. I’ve watched several other videos thus far and yours is the easiest to follow, way less complicated than the others. I just deposited all my money into my checking account and am looking forward to changing my way of paying my loans and mortgage. You have my undying gratitude!
I'm so happy for you! I'm glad I could help!
So, the big idea of velocity banking is the use of simple interest credit versus amortized loans. That is where the big gain is coming from. Applying the paycheck immediately against simple interest loans cuts the average daily balance on a simple interest loan. The amortized loan suffers from a huge interest payment up front that reduces as the principle amount comes down. By bringing the principle amount down earlier you gain a HUGE interest reduction and therefore reduce the life of the loan and total interest paid. Yo really missed the boat on velocity banking. Velocity banking also leverages the revolving nature of a line of credit versus an amortized loan, which you cannot reuse once it's gone.
I disagree with your analysis of my understanding. I understand what you're saying, but also see some faults in your logic. Yes, paying more toward the principle earlier will save the maximum in interest. As for being able to borrow against your house...wasn't the whole point of paying off your house to get away from the payment? Many people who love vb forget about when loc's freeze your ability to borrow. They also forget about the psychology that comes with training your mind that you can borrow your way out of debt vs learning how to budget what you earn. I see a lot more dangers popping up for people doing vb vs just paying your "cash flow" toward the mortgage. Will vb work as people teach it? Yes, absolutely. That's not what is in question. The question is, is vb the best way. I don't think so. If you do...good. I wishyou the best. It feels good when you own property outright...I've done it 3 times.
Thanks you sir,for your video. I have been commenting on various "Velocity Banking" videos for a week now. Everything you said is exactly right. I have watched several of Denzel's videos and commented on them as well and I agree with you,his heart is definitely in the right place. I have asked people to search on the Internet definitions of Simple Interest, Compound Interest and Amortization. I have provided the definitions, with examples. The only response I get is full of haterade.
I ask people to lookup the terms so they don't take my word for it,but validate what I say. They don't understand that all the lines of credit are compound interest. They don't get the illogical nature of borrowing at 21% to pay down a 6% loan.
The only thing in this video I would enhance is your definition of Compound Interest to include the fact that it charges interest on top of any accrued interest. Otherwise, video is perfect and I'll watch the detailed one about interest.
Thanks for having the foresight to post the Excel sheet.
Thank you! It's easier to go with the crowd sometimes, so I'm always happy to hear from people who've also done their homework!
I had been looking at Velocity Banking... and I have watched Denzel's video (that is how I got here), and though I think what he does is great, Velocity Banking always seems confusing and dangerous (at least for me and my situation). So this has convinced me that that its not for me. THANK YOU!
You're welcome! The important thing is that you're informed and are comfortably able to make your own decision.
By putting all your money on the line of credit and slowly paying your bills from the line you are keeping the interest payment to the line lower.....plus the chunk payment to the mortgage will make your regular schedule mortgage payment be more principal than interest.
You're right about the mortgage. By paying your bills with cash on hand, you don't pay any interest on the amount used to pay your bills.
I am still learning velocity banking and I want to point out one of the big benefit of velocity banking if the time it takes for you to come out with extra money. For example you can do velocity banking for 10k toward the principle in the beginning and have 1 yr to pay it off. If you just save and pay extra in addition to your emergency fund it takes much longer to come up with 10k toward the principle. I think that is a major point
While you are right, that also means you're paying higher interest for a year, which doesn't help you pay your loan off faster. You'd be better off paying extra toward your mortgage each month, but after all your other debts are paid off. It may be helpful to consolidate your other debts and use velocity banking to pay off those debts, especially if your vb loc is lower than your debts' interest rates.
I am new to this VB and I think it sounds too good to be true. I don't know how to compare interest on credit card let's say 20 APR vs mortgage 4% they are not on the same system. Let's say for 10k what is interest in both?
You are correct in that the numbers essentially work out the same either way. I think the advantage of velocity banking is liquidity.
VB can create liquidity, but if the LOC someone chooses to use locks the LOC so that no more can be borrowed, the average joe will be up the creek without a paddle because they sank their whole paycheck into it and now can't get anything out of it to pay their bills. I've had a credit line frozen before when I was expecting to be able to use it. Anyone who experienced real estate investing in 2007-2008 should fully understand exactly what I'm talking about.
Real Estate Investing Unmasked, that is a very good point about the liquidity of the LOC and depending on it as a security fund. Question: was your personal LOC credit that got frozen a HELOC back in 2008? I was under the impression that it was mostly HELOCs that got frozen, understandably due to falling real estate prices, since real estate is the collateral for a HELOC. But, that PLOCs and BLOCs were mostly unaffected because they were unsecured to begin with. I’m curious if you had a PLOC or BLOC frozen back then.
PERSONAL LINE OF CREDIT ... have 40k PLOC and I used it to buy a duplex in Salem Oregon... the duplex gives me 1k of cash flow and the renter pay my mortgage...in 3.5 years I will pay the PLOC using the renters money and rinse and repeat...going for 20 real state properties just using personal lines of credit...
I've had large goals like that. My word of advice is don't be so caught up on the number that you buy something that's not a good deal just to advance the quantity in your holdings. That was one of my downfalls nearly a decade ago when my goal was to buy 20 units in a year...i got 13, but I got some doozies that sunk me for years thereafter.
I hear ya Pedro. I too have that goal.
(PAY your bills) + (PAY credit card balance from last month) + (leave 800 in checking) - (USE credit card for non-bill expenses ie. food, gas, clothes etc...) + (send any extra in checking to pay additional principle) = Velocity Banking without the risk.
I love how you explained stuff. This method is preferable for me.
Thanks for sharing
We've tried velocity banking and it works great.
Thank you for sharing. So your house is paid off? Congrats!
You get it! Velocity Banking is just changing the who your money to. I have been using a strategy called snowball or avalanche, basically putting all available money into the highest interest debt then moving on to the next, very similar to yours.
Snowballing's a proven method that makes sense!
I thought the VB was to maximize & access to cash flow. With your process you spent extra on the principal but you don’t have access to the funds for future use or investment. Just my thought but I’m curious to know what you think.
VB uses a line of credit. Once it's used to pay down your mortgage, you're still and debt and don't have access to the loc any more except what you haven't borrowed yet. If you get a loc or heloc, you have access to funds while you use my method without raising your amount owed. With VB, your loc limits will likely increase because you're constantly borrowing. Your credit will prob go up for the same reason. Miss one payment on a loc and your credit takes a hit. Miss the extra principal on top of your mortgage payment and you just don't pay down your additional principal that month, but your mortgage stays current.
I agree with you. I have watched some videos on velocity banking and it seems like they always kind of wash over the interest charged in the LOC account because it is highly variable, with various interest rates and various pay dates, so it is nearly impossible to estimate without exact numbers on bills and expenses and when they would clear. In running an excel spreadsheet with both paying off 1000 extra per month on a 300,000 mortgage at 3.625%, versus withdrawing 6000 from an LOC and paying a lump sum every 6 months, there was only a savings of about $1000 on the mortgage interest, but the LOC interest is about $2500, so you end up paying additional interest, even at just 7% for the LOC. That nearly doubled if the LOC was at 10%. So even though you may save due to flow, I do not think there is enough difference to make up for the additional interest and higher rates of the LOC. At best it may be a wash at typical interest rates.
I have also been looking at videos discussing investing money rather than paying off your mortgage. I wondered what you think about it. I ran numbers and what I got was that you had to make 5% in the stock market to break even. At a 10% return it was highly profitable, but of course returns are not guaranteed. I have been trying to figure out the best way to pay off my mortgage before retiring in about 15 years or to have enough money in my ROTH by adding the extra funds each month to pay the monthly payment using the interest instead of paying off the mortgage. I was considering splitting it and paying half of my extra money each month on the mortgage and adding the rest to my ROTH and trying to get the best of both worlds. I was wondering what you thought of that or if you had any ideas. I am currently building up emergency savings and hope to start making extra payments on the mortgage next year.
What a great, thought out comment! I can tell you've done some homework! When it comes to paying off your mortgage quickly vs paying minimum payments and investing, the question you should ask is if your house was paid off, would you borrow against it to invest in the stock market? I would not, but someone else might. Your assessment of the 5% sounds about right with today's interest rates.
My thought is this: if I pay more toward my mortgage, I'm guaranteed the pay down and interest savings. If I invest in three stock market, I'm not guaranteed anything. I feel like the stock market is artificially inflated at the moment. When everyone is yelling to invest because of the great returns, that's often when I turn into the contrarian. In 2008 when everyone was getting out of the market, it was the best time to buy. If i were in your place, I'd put 10 to 15% of my income toward retirement each month and use whatever is left over after your expenses and fun money to pay down the mortgage. If you're 15 years away from retiring, that should give you a good egg of savings and a house either paid off or nearly paid off. My suggestion is not purely based on math. It's based partially on psychology, too. It's good to see your mortgage balance drop, but I think it's also effective to see that you'll have more than just a paid off house in retirement. If you don't need the psychology, go with paying off the house as quickly as possible, then apply your "mortgage payments" to your investment accounts thereafter. If at any time the stock market crashes, make minimum payments toward your mortgage and slam that Roth while the buying is good.
@@RealEstateInvestingUnmasked
I am paying 1200 extra every month and making a lump sum of 5k annually. With this method I will pay of my mortgage in 10 years. My plan is when my husband retires and we have decreased household income our lifestyles will remain the same since we wont be making payments anymore
I am checking out the excel sheet you made. Also, I am new to the idea of VB and also am new to the cash flow index. Until a week ago, I attached high interest loans. Now I use the CFI to consider what to pay off first to open up cash flow. i like your video, it gives a clear cut view and different perspective. I have made an elaborate excel sheet myself, and with my current cash glow, I would only be able to take out $2k per month from my LOC. Where, if I use the CPI concept, pay off my car loan quick, which is at an interest rate of 1.99%, I will free up $285 a month, allowing to pay towards the principle of the mortgage or VB. I am going to continue to educate and make models on excel to see what is best. As mentioned, what works for us is best. However, it makes sense to just pay off the mortgage principle faster. Also, I remember the formula for compound interest, and yes, compounded interest is fierce. Great video and food for thought.
I've been putting my paycheck into a high interest savings account with amex at 2.10% and betterment at 2.68% then I'll transfer to a traditional brick and mortar to pay bills accordingly. I'm going to put any leftovers funds towards principle on the mortgage.
So glad I found this video!!!
I have been tossing the idea around about using VB. I've watched quite a few VB videos and they all make great sense! But so does this. This actually makes the most sense. There are only 2 benefits to VB, well not really. Like you said... FICO boost is the only REAL benefit. The other benefit lauded by all the RUclipsrs pushing VB is the extra "cushion" available to you, and that a HELOC is open ended or revolving. The downside to VB being a cushion or emergency fund is that you have to pay interest on using it (and if it's used for an emergency... chances are paying interest is going to hurt even more).
I follow quite a few RUclipsrs who speak finance (I skipped math in school....didn't need it that much for medical school) some of the things being tossed around make a lot of sense, and finding your own path seems like the best advice out there. The one thing everyone can agree on is paying off your mortgage as fast as possible.
Thank you. I appreciate your analysis.
Remember Velocity Banking is a tool - not an extra credit line . ITS A TOOL!
And this tool can only be used by the people who are Disciplined enough to use it correctly and are ready to invest in themselves and who realized that they have been getting ripped off by these crooked Banks and are fed up with it.
So if you use it responsibly it is not considered an extra credit payment against you.
You have passion in your writing. Thank you for that. While I love the idea of paying off the mortgage quickly (I've paid off 3 properties in my short life), banks make it possible for more people to own homes. They're not always crooked. Many times, the people calling the banks crooked are people who've not read what they're signing. I've also been the lender through seller financing. It's good to have both perspectives. (Btw, as a lender, I always wanted my borrowers to pay off the loan as quickly as possible so I could lend money again)
VB is using some form of credit, so yes technically it is another credit line.
People hurt themselves with TOOLS, unless the process can be automated, life going to shit on you and derail the be laid plan. Recommend not paying off your mortgage and build up cash flow instead. You truly never own your house because your local tax authority will always have part ownership.
@@archimedes7436 You are leveraging a credit line to perform the "Strategy" of Velocity Banking. I wouldn't consider VB a credit line. It's a strategy that uses a credit line.
Velocity banking is essentially tricking people into putting their entire paycheck toward their mortgage/debt. That's the only advantage. Your way cuts out the middle man LOC. If you want a personal, unsecured line of credit for emergencies that's fine, but don't borrow at 21% to pay down a 3.5% loan.
the point is no one has so much cash, HELOC is a leverage when buying, and a emergency pool when reducing debt
I can understand the concept of the leverage tool or even emergency pool, but to use debt to reduce debt (unless to lower the interest burden) is counterintuitive and creates bad habits. If someone pays off all their debt outside of the mortgage by consolidation into a heloc, it makes sense financially and mathematically. The problem people run into is they've not changed their habits, so they start borrowing again on the cards they just emptied. Much like someone who gets surgery to cinch up their stomach, but still have the same habits, it can lead to going right back to where they were before surgery. Heloc can be a tool, but it is not THE solution... of course--》in my opinion 😉
@@RealEstateInvestingUnmasked so that comes to the point, if you want to be rich or at least out of debt, you definitley need to discipline
Discipline is key. Without it, you don't find financial peace, regardless of whether that means riches or just staying in the black.
I'm going with the VB method because rates are currently at 3% intro and 5% post intro. I've already been doing your method for 10 years but my mortgage company is screwing me because they are not applying my mid month (on the 15th) payment towards the principal until my full payment (on the 1st) is received so the VB method will beat them at their own game. I highly recommend making bi-weekly payments but most mortgage companies do not allow for that and if they do, they won't apply the higher frequency of payments in a method that benefits the borrow. I have read all the comments on here and have enjoyed the debate. I have run the numbers and VB will enhance what I have already been doing (your method). That being said, it's a 2.0 level finance trick for people that already have higher cash flow and excellent credit scores. Anybody doing it at 20% is dumb, your method is much safer and I personally believe that most people who try VB will fail. It's not for amateurs.
Well analyzed.
Thank you!!!!!!!!! It did help me a lot to understand the difference between VB and regular payments to principal...
I did a spreadsheet as well.
Your conclusion is correct.
The only benifit i could see with VB is that it forces you to stick to the goal cause you have to pay off the LOC or it is additional debt.
But VB and paying extra both do work, technically. But also agree that paying extra is less risky.
Im not trying to win in this situation. Numbers dont lie. I do respect your concept but cash flow and leverage are points to be considered.
I went through your video a couple times to make sure about something. In velocity banking you are creating cash flow due to putting your income in the LOC and not making that payment you would have normally made. How are you creating cash flow in your method?
I'm not sure I understand your premise. If you're asking how you make your money work for you in my method, you have a baseline in your savings account so that anything left over when you next paycheck comes above that baseline is sent in as an additional principal payment. That's the same thing velocity banking does, in essence, with one difference. With velocity banking, your paycheck is paid directly onto the LOC first and you borrow from it afterward. With my method, you use what you need first, then pay toward the mortgage. The difference is setting up a routine/habit for you to only use what you earn and not spending more than you make, whereas the LOC teaches you a habit of borrow what you need because you'll just pay it down later. That's how I see it...you have to determine what habit you want to have in the future. I prefer to be in the habit of not spending more than I make. I think it is a safer bet. Does that answer your question? If not, please define what you mean by cash flowing (I think of getting rent checks when I think of cash flow).
Real Estate Investing Unmasked so you’re saying that with your method at the “end of the month “ after all bills are paid you will use that extra cash to pay off the principal balance of a mortgage ? So you’re keeping money in your checking account which is exactly what the banks want you to do . At the end of the month when you use your left over cash to pay your loan you are now completely out of cash . With a LOC you don’t lose your cash flow . You’re knowledge is Weak!!
I appreciate your polite manner. Way to keep it classy!
@@dsanti4069 After having watched 8ish different videos from 5 creators about velocity banking It is easy to see that you are just repeating their catch phrases without any real understanding. Not only is your premise wrong, you are using some of their terms incorrectly. As a less than wise man once said "You're knowledge is Weak!!" by the way, it would be your, not you're.
@@RealEstateInvestingUnmasked by 'cash flow' they mean the amount of money you have left over after a months expenses, they create cash flow by paying off debts and opening up the monthly payments on those as free cash. It is not exactly the same use of the term that most people use.
The only difference in "cash flow" between your method and velocity banking is that with the lump sum they can pay down more of the smaller debts at once, so they have more of their income available to pay down the loc and later the mortgage, which depending on the amount of other debt and the interest rates on them that might be the best first step, and then just stop using the loc after the higher interest debt is settled.
Good and respectful; andmost important, the truth. Both methods are viable. But for both, the initial income-cash flow is what going to determine th speed.
From what I'm starting to understand .. it appears you can just pay EXTRA on the principal .. and you'll come out NEARLY IDENTICAL to VB. I was going to move some funds to my ZERO percent line of credit for six months .. not sure it's worth doing that to be honest. Any ideas? Or should I just keep paying extra on my principal. I have to be honest, I like NO CREDIT CARD DEBT - zero. Zilch. I am thinking of just keeping it that way if it only saves me a few months to do the complex VB route.
If you hate credit like I do, which is what you've essentially said, I would not do vb, even with the zero interest account for 6 months. Vb conditions people to borrow. It relies on it. I stay away from stuff like that, personally. And you're right, the end result is nearly identical with just paying additional principal winning out most of the time. The exception is when your line of credit has a lower interest rate, like your 0 interest line, but if it jumps/adjusts after 6 months or so, I wouldn't put my head in a bear trap...
@@RealEstateInvestingUnmasked Thank you SO much!!!!!
Min. 11:30 you did not say the same thing when you spoke about paying the line of credit. You should be more open minded and compare apples to apples when it comes to pay compound interest. In general Velocity Banking works best in every single way you look at it.
1) You don't pay more money monthly than what you are paying now.
2) You use other's people money to pay your mortgage faster.
3) You increase your credit score.
4) You know exactly when and how big you're gonna make your payments.
5) Your sistem teaches you to use your own money, make bigger payments and who knows if every time your bigger payments are gonna be in the same amount and teaches to change your lifestyle.
6) The only one time your sisten beats Velocity Banking is if you use it simultaneously.
You should go back to the basics. Go back and read again "Rich Dad-Poor Dad"
Rich Dad Poor Dad definitely teaches you how to borrow to your eyeballs and casts away risk. No thank you. The method I teach/suggest does not have to be used in conjunction with velocity banking, but rather is a substitute for it.
1)Your interest charged is higher using velocity banking vs my suggested method, so while your monthly outlay remains the same, essentially, my way doesn't increase the interest charged on the additional amount you pay toward your mortgage. Velocity banking forces you to pay interest on the amount you borrow to chunk payments on your principle. 2)My method definitely teaches you to use your own money. If you use opm, there's a cost to it. It's called interest and that's what got you into the mess of owing money in the first place. 3)Yes. Vb does increase your ability to borrow more, but if your point is to borrow as much as possible, why pay down your debt in thefirst place? Just enslave yourself with as much as you can like Kiyosaki indirectly suggests? 4)If you did my method, you do, too because you're budgeting. 5)Yes, my method changes your lifestyle. It supports the idea of living debt free. I thought that was a point consistent with trying to pay off your mortgage quickly. The lifestyle change is the mental change that debt is bad and risky whereas Vb teaches to embrace debt by borrowing yourself out of your problems. It's counterintuitive. People advertise it as a way to use the bank against the bank. I'm a lender. I would totally lend money to someone practicing velocity banking at 20% interest because I still get a fabulous roi...perhaps you could read between the lines in RDPD and figure out lenders win better than those who buy thereal estate to buy and hold, wholesale, or even fix and flip. When I lend money at 20% to a flipper, I never have to touch a tool. When I hold the note on a buy and hold, I don't worry about the tenant paying the rent or clogging toilets. You don't pay the mortgage, I foreclose and sell the house to someone else who'll pay me interest on the equity increase you lost out on when I foreclosed on you.
Does velocity banking work? Yes. Is it as effective as just applying what additional money you would have applied toward the vb lender toward the mortgage/debt? No. Same dollar amount, different interest. It's a tool...just not the best one in my opinion...much like using a standard screwdriver to unscrew a Philips screw. It can be done, but not as effective for the whole job.
After going through each of these videos and a few other VB videos I think I decided I am better off in terms of paying off my car loan by putting the extra $500 a month on top of the monthly payment I doing already ... the loan is new so I am banging away at the interest bearing amount i get hit with $15-$20 a month so my initial payment is accelerating faster on its own and the time to total pay off gets shortened on its own ... if I don't have that $500 to spare to drop on the car I don't do it and i use it elsewhere ....
VB just seems like you are playing a gamble your job will not go away and basically the best scenario you just collect and pay ...
Same for the Home Mortgage stuff ... except for that one I take the extra money there and invest in the stock market to grow the wealth there until I get a nice nest egg and can if I want to drop a big check to zero out the loan ... or better yet I can use the money for something else in a crunch but i am also depending on the stock market and my portfolio to be able to mitigate risk so I don't see a big chunk of my capital disappear ... but that only happens if I cash in the investment vs wait for it to recover ...
I like the idea of my house having money I can tap into and you get more and more available as you pay down the balance ... still that money is still mostly locked in ... as I notice most banks also put a term limit on your lines of credit as well ... the more i read on these methods the more I go with hold onto your cash and make those lump sums when doing so will not leave you without a safety net... which is clearly explained here as 'Step 1 .... have a zero balance minus your emergency funds before doing anything'
Still this was a good video minus the worse of the bickering that was offered up by some of the comments.... so thank you very much for sharing
I do it more like you suggest. I pay an extra 1000 every month. I also dont see why you couldnt do this on a smaller scale by doing it with 2000 a month and paying that off every month. Seems to me like it does the same thing while being a bit more managable.
There's 2 big reasons why VB can work well.
1. VB assumes you are putting money in a traditional savings account for that "rainy" day fund. Instead of putting it there and getting the 1% returns which you still pay tax on, you instead use that money to offset your debt. My loans about 5%, so the offset is a difference of 6% more to me.
2. your check that comes into your HELOC will lower your daily balance until you start to spend it, so there is some time savings of interest not being paid.
All factors need to be considered and they may not apply to everyone, but certainly this is the premise to why the process works. Without considering these factors, it's not going to substantially make a difference.
Thank you for the additional analysis. It adds to the discussion and I appreciate that.
You nailed it James. The key to saving money with that method is paycheck parking as well as knocking down big chunks of principal early. The major advantage to this method over just adding extra to principal is that you maintain control over your money.
I clearly explain paycheck parking in this video
ruclips.net/video/CfH2Vh-VYlU/видео.html
I’m sorry to tell you this but you have it all wrong as far as velocity banking my friend. You must understand that the main variable on how much you pay in mortgage interest is TIME. It is how long it takes you to do get the debt paid. The longer, the more you will pay. Whether it is 1% or 20% interest on any amount of money that you owe, if you take a long time you would pay more interest. I advise you to check a bit more.
I understand the longer you take to pay off the lender, the more interest you will pay. The main thing I'm comparing in this video, though, is the difference between paying your mortgage/loan off faster by using your left over cash or by paying down a LOC you use to pay down the mortgage/loan. Comparing what I'm teaching or what velocity banking advocates teach to just paying your normal payment over 30 years is not comparing apples to oranges. The base premise to my argument requires the person paying to be focused on paying off the debt as soon as possible. If I didn't understand your advice to me, please restate and I'll consider what you're saying. If you're only stating that paying one lump payment at the beginning of your loan will prevent thousands in the long run on interest, I'm hoping all people know that...which is why a larger down payment is preferred in the first place. I hope I'm understanding what you're trying to get across...I've done the math and stand by my statements.
You are so right! I have not heard Mr. Rodriguez explain what happens if you make the chunk payment on the mortgage and you lose your job that month.
this actually happened to me personally I chunked at debt lost my job then I got another job built up a side hustle asked for help. If I was doing debt snowball and lost my job it would work the same way. You figure out a way to get yourself back on track
Please correct me if I am wrong but there are two things I believe you are missing. The first is the amount of money VB takes off the table that is being calculated. Remember a line of credit is calculated monthly through daily average balance. This means VB takes the daily compounded interest and puts it on your side IF the VB practitioner pays themselves once per month AND can herd their bills around the same time each month. Here is an example. Lets say ones chunk is $5,000. Lets also assume ones total take home pay is $3,000. This means $3,000 is taken off the table from accruing interest. If the mortgage is due on the 1st and one can get their bills moved to the same time each month, one should pay themselves right after the bills are paid. The cashflow pays down the chunk. The second thing I believe you are missing is opportunity cost. Of course this is HIGHLY depended on what one uses the chunk for. So do I recommend paying down a mortgage with VB, not without an emergency fund first. The mortgage is simply to big of a monster to deal with as a simpleton.
I've considered the perfect storm you're speaking of with the monthly time frame. From the figures I've played around with, I don't see it as an advantage large enough to offset the problems with it.
As for the opportunity cost, I'll need you to expound on the idea so I understand how vb is better...unless you're talking about investing your money instead of paying the house off quickly.
For the people screaming CASH FLOW... Get a loc but don't do vb, pay just extra principal payments. Pay Netflix with the loc and if an emergency comes up use the loc. Better just have an emergency fund but people don't save money so whatever.
When I first heard about velocity banking it didn’t make much sense to me. Getting a boost in your credit score is nice but if the goal is paying the least interest, you’ll need a debt weapon with lower interest rate than your mortgage as you outlined. I don’t think the risk of living without a cash emergency savings is worth it tho. Velocity banking relies on banks keeping up your LOC limits. When a recession hits and banks see higher risk of people not being able to make payments their LOC, they will freeze the LOC and then you’ll be without any savings at the worst time possible. They did that in 2008 and they may do it again now during the covid-19 pandemic.
So true! I had credit lines frozen in 2008, and I was paying on time every month... you never know how others will react in a crisis, but if you have a partnership with a bank (a loan), you're subject to what they are willing to let you do, too. I prefer to leave that partner out of my business when I can ;)
You missed cash flow also, using cc, you get points (some cc), no minimum payments cuz your checks take care of that and the interest rate that gets added at the end of 30 days. Velocity Banking is great to increase Credit Rating. You did do a good job just missed a few things, but velocity banking was originally used in Helocs and eventually used a cc.
Preached brother! I’ve been scratching my head why would people do the Velocity Banking.. If you got extra money to do the Velocity Banking why not just pay that straight to the principal. Less risk and simpler that way not to mention cheaper lol
Agreed
It’s not cheaper to just pay straight to principal. It’s actually cheaper to do the velocity banking method, or what I call dynamic banking, due to paycheck parking. Not a huge amount cheaper than just paying principal, but it does save you money.
The real advantage of using dynamic banking is that you have access to all of the extra money you’re putting towards premiums.
If you just throw extra money at your principal, you lose control over those funds. You can’t access them without getting approval and paying fees for a new loan.
Oregon Cash Flow Pro did the calculations and it’s still cheaper paying straight to the principal and I’ve used a 2% fee balance xfer card with 0% interest every 12 months, your Heloc interest can’t be lower than 2% average right now is 4.99% at the very least. If you’re worried about cash flow just save an emergency fund that is worth the exact amount as the Heloc amount that you’re thinking about in case for emergencies. And what happen if you have an emergency right after you’ve fully used the Heloc and are just about to start the Velocity/Dynamic banking? Now instead of parking your check there having the extra amount paying it down your stuck with using that extra money for emergencies, not to mention right now is a rising interest environment 😂. Please calculate it yourself and actually amortize it to see the numbers and stop throwing these theories and terms like “paycheck parking” “dynamic banking”. Bottom line is borrowing money is ALWAYS more expensive than using your own. Use leverage to set yourself up for better opportunities not set yourself up for greater RISK. Please show us your numbers if you’ve calculated it, I would love to be enlightened 😂
Andalez R Well put. Dave Ramsey would be proud.
@@andalezr6702 "If you’re worried about cash flow just save an emergency fund that is worth the exact amount as the Heloc amount that you’re thinking about in case for emergencies."
I dont know many people that could do that. You're talking tens of thousands of dollars here. Plus by doing this suggestion you've effectively increased the time to pay of the mortgage by at least the time it would take you to save that level of money
It does make sense that if you don't have a lot left over after expenses, the extra interest and fees will eat up any excess cash flow over just paying a little extra as in your model. At the same time, if some of your expenses is paying on the credit cards this monthly servicing of the debt gets included in the cash flow which may be enough to make velocity better than just paying extra out of your bank account.
Interesting thread! I think the real gem is getting a longer term loan at lower or close to mortgage rates. There's no early repayment fees, and the interest is fixed, so easy to model. That means a % of the debt is more ' fixed', allowing one to have a 'floating' element of mortgage liability, and a 'fixed'. I'm not recommending any particular course of action, one has to do their own research, but for me it seems pretty OK to borrow £100k, at 4% over many years, allowing one to invest in other assets, as well as a mortgage, knowing that this is their ' borrowed arsenal of cash'. Won't work for everyone, but if I can get income properties at 10% ROCE, then something like a low cost loan over a decade or two, might be a decent growth catalyst. What are everyone's thoughts?
Academically, you're correct to borrow at 4% to receive a 10% roi. Good luck!
Why don't people start saving right now for 6 months, then make a lump sum payment from their savings account with that 6 months of saving and then repeat? Seems like that would save them more interest. Am I missing something about velocity banking, or is that the equivalent but cutting out the HELOC/LOC?
That's the equivalent. What they're trying to do is pay the 6 months first, then pay it back. The time value of money is what they're trying to take advantage of. So making a lump payment toward your mortgage helps, but instead of waiting 6 months to save up the lump sum, it's best to put what you would have put into savings right into the loan. This way, the amount you pay above the normal balance will reduce the amount of interest each month along the way. So if you paid 2k, for instance, you save the interest on the additional 2k each month thereafter, which at 3.5%apr, on 24k extra paid in a year, you'd save nearly 1k per year. The savings afterward is pretty easy to calculate. To compare just making additional payments vs lump payments takes time to input into excel, but if you're making interest payments on order to make the lump sum principal payments, you negate some of the savings...
Liked the video. Did you say that if the bank lended on simple interest instead of compounded, the percentage rate would be 150%?
So on a $100k loan, that would be $150k of interest?
Wouldn't paying 21% simple be cheaper and faster than 150%?
On a 100k loan, it is typical to pay $150k in interest.
Can you explain?
I once have a simple interest loan to a religious man who didn't believe in usury... in other words, being charged interest. We sold him a house for 100k, figured what we'd get over 30 years in interest if amortized under normal circumstances and converted it to an interest rate. We essentially locked the interest in instead of compounding the interest. So instead of selling the house for 100k, the contract was for 250k with 0 interest or close to that. So essentially, he paid 100k with 150%simple interest. Even if he had a late payment, his principal would not have more interest added at any point on the loan. If he paid it off early, he would still pay the full amount with no break on what we considered the interest charged. That's simple interest, to me. If you look up simple interest, there's a second definition as well. For me, if interest is calculated and charged based on what the principal balance is, it is possible to compound interest, thus in my opinion, it becomes a compound interest loan. Some disagree with me, and I'm OK with that.
Really appreciate the detail and transparency. Thats speaks volume and much respect! So the reason why I had a thumb down is because base on the research that at lease i have done, thise teaching velocity banking also mentions that it is not for everyone, having the amount of cash flow needed to make sense is required! So as you mentiened, if you income is not that much more then what you looking to payoff, then this is not for you! 2nd, you method as you mentioned is great for a Dave Ramsy advocate, which I feel has many great points, but isn't really in today's time circumstance
For example, I make a reasonable amount of many, but certainly not any close to been wealthy, my wife and I recently attempted to purchase a home. Use some good strategies for the right investment. Had a home with an excepted offer of 95k, pursued a 203k loan so the estimated repairs and prep 65k , the AMV was 232k. Guess what stopped the deal! At least what the excuse was! Low credit! I say excuse because our credit wasn't the highest, but certainly not the lowest! We ask, if we brought 50k cash to the table would that pushbthe deal through! The answer was no! Cash isn't always king in our current day! So the credit factor is a great part! Also, you gave an example of someone having income of 20k a month, that is not in anyway a average! So let's try income of the average people that can use something like this. Let say we bring in about 4500 a month, and our monthly expenses are about 2600 a month. Realistic #'s. Can you explain how your method trumps validity banking? For an individual who is just getting started so my capital is not as heavy as yours? For unfortunately experience some fornof discrination so everything must be perfect. So having money, would be judge as not legally obtained, but having the credit and a track record of utilizing funds as it is designed to be used to match the funds that you do have but at the same time using the OPM method. What is faster? In your way, i have to already then funds to live that life where here I can build the funds as well as building the credit. Really would like your feed back. Much respect to you sir.
There are a couple things you bring up: 1) credit. Ramsey teaches to not use credit at all and get a home loan with 20% down with a 15 year loan. While I think his plan is one of the best, I also think there are times when buying a house with less down is appropriate. As for your inability to buy the house you wanted with the loan set up you wanted, that's purely a lender's prerogative, in my opinion. If you have low credit, you'll have to focus on what increases your credit before ditching your credit. One small thing I do is charge an item on my credit card once every 3 months and pay it off before interest is charged. Cash is still king, because of you had cash enough to buy that house, they couldn't have told you boo about your credit. Great credit opens doors when you don't have money. In your purchase, if you could have found a credit partner, you would have been fine. Part of real estate investing is learning how to make a deal where everyone is happy. It's possible. I've used a credit partner before.
2)20k/month comment. I don't remember saying 20k per month and I haven't gone back to look at the video; however, a major point in velocity banking is that you must have more money left over at the end of the month than you have expenses. If you have 1900/month left over after all expenses (food, gasoline, utilities, etc), velocity banking teaches that you borrow no more than $11,400 every six months on a line of credit no smaller than 16k. You then have to rearrange your finances so that your paycheck is direct deposited into the line of credit and all your expenses are paid using the line of credit. You are then paying off your line of credit in 6 months (little longer because you're now paying interest on your line of credit, so it's not a direct 6x disposable income). By doing this multiple times, borrowing money and paying it off in an accelerated place, your credit rating will likely increase. This means your ability to borrow increases. I'm not a huge fan of this method. I'd rather pay off my debts using the 1900 each month.
Velocity banking enforces a borrowing lifestyle. I prefer the debt free lifestyle, finding it much more easy going and relaxing.
As for obtaining money, I didn't quite understand what you were alluding to. I'm of a strict belief that everyone can obtain money legally to supply their necessities, regardless of what they look like, their ethnic background, gender, etc. I have built multiple streams of income. I suggest the same for anyone. A stream I'm currently engaged teaching my children is going to discount stores to buy goods you can resale for double to triple the price on eBay and the like. They're learning important capitalist truths and earning cash without having to punch a clock for someone else.
Makes so much more sense. I absolutely hate debt, I would much rather use my own money/savings.
One thing I think is missed here is this scenario. In addition to my mortgage and regular bills I have two loans, one for $3000 that cost $200 a month, the other balnce is $1500 that cost $100 a month. After all expenses are paid including the loans I have about $500 a month free cash flow. If I get the HELOC loan, I can consolodate those two loans AND pay a lump sum toward my mortgage. Once that LOC is paid off (6 months) I can significantly increase the lump sum toward my mortgage. Can I do the same thing with a generic consolidation loan? Yes, but with a higher interest rate and less liquidity. In this case the HELOC method makes the most sense.
Use a amortized calculator and plug in a 10k payment in the beginning of your mortgage and pay that 10k plus 21% interest back in 1 year or less and see the savings over the course of you mortgage vs the cost of the 10k cc use
Comparing apples to oranges.
Sounds like it's about the same if you have a good mortgage interest rate. But something else I take away is that it could save a lot of money in paying off debt with higher interest, such as credit cards and signature loans. Is that accurate?
If you apply more money to the principal of any interest bearing account, it will help you pay it off faster- you're absolutely right! If you have credit card debt or any other loans that are shackling you to payments each month, pick the highest interest one and kill it first, then snowball the payment into the next, and so on, as long as you have the discipline to do that. If you don't have great discipline, work on knocking out the smallest debt first, then snowballing into the larger debts.
So what if I get sick and can't pay??? I lose both properties??
Usually, if you can't pay your bill, you lose whatever you're paying on... unless of course you have an emergency fund to cover you while you're sick. During this covid-19 pandemic it has been more apparent than ever that an emergency fund is more important than a line of credit, imo.
IT IS EXACTLY WHAT I DO WITH MY MORTGAGE. I ALSO HAVE CREDIT CARDS I USE AS PART OF MY EMERGENCY FUND. I KEEP ABOUT 2 THOUSAND DOLLARS FREE IN MY CHECKBOOK, THE LEFTOVER I APPLY TO MY MTG PRINCIPAL. SO FAR I AM SURVIVING THINKING MY HOUSE WILL BE PAID IN ABOUT 10 YEARS NOT 30
Smart lady! As long as 2k serves to cover your emergencies, you're solid. I've had a few paid off properties, including income properties. It makes life easier!
You don't understand the concept!
Explain the part you think I don't understand. I'm always open to learning something new.
He’s missing the average daily balance bump due to paycheck parking. The actual interest you would pay on the LOC would probably be 3% all things considered.
The one thing that should also be considered is that however you do it if you can get either a lone or LOC for debt consolidation do the before any of the other strategies. Had a friend that got married and got a debt consolidation loan at about 12%, on average he was paying 18-20% on their CCs so he saved 100s every month that he used to re-model the house they lived in increasing its value over 40K and then flipped it and did that over and over, living in the house and mostly getting friends to help with as much of the work as possible and since his father was a great tile setter they did well.
Debt consolidation is a great way to free up monthly cash. Immediately afterward, though, you should apply the cash savings toward the principal balance to wipe the debt out. Too many people go through debt consolidation, free up cash flow, then return to borrowing more again. Thanks for adding to the conversation!
After watching those velocity banking gurus I figured it out for myself! I’m using his method only I pay a specific monthly amount directly from my bank so I can amortize it! I also amortized the 6 month lump payments and both have essentially the same 4 year payoff date , this is from being 7 years into a 30 year mortgage! Difference being I’m not jumping through a bunch of hoops paying extra fees plus interest! The money in the bank accounts that’s my money! Paycheck to a LOC or whatever it becomes their money I have to borrow back?
That's what they teach... paycheck straight to loc then borrow from loc to pay bills. The problem is if they ever decide to prevent you from using the loc, you're screwed...
What about CASH FLOW. You really missed the boat. Watch more of Denzel’s videos.
I understand cash flow. It's quite the buzz word among vb evangelists. The math doesn't change because of a buzz word.
Soundes loke his cashflow was 3000 dollars worth of the emergency fund
Wow This video really got a lot of views
Another thing to consider is that a HELOC is a recoupable loan. In the event you foreclose on the property for whatever reason the HELOC is not eliminated and is still due.
The heloc is is a junior lien, but a lien nonetheless. If the property is foreclosed upon by a senior lien holder, all junior lien holders get their money only after the senior liens are satisfied...but they're all secured loans, meaning they get their money through the property. All this to say if you're foreclosed upon, the loan is eliminated.
This may be true if strictly paying off mortgage. I cannot say much about that though. What I can attest to is the VB method works great if looking to pay off debt such as credit card. I started using my CC as my debt weapon in November 2018 and am set to pay off about $23K in June 2020. All by using my CC. I’ve carried about that same balance for as long as I can remember and tried the Snowball method with zero impact. Probably tried the Snowball method for over 10 years. If I made any progress some “emergency” would happen and eat up those gains. Getting my cash flow to work for me was too hard. Once I started dumping my pay into my CC each week is when I made real progress. Credit score is not that important to me but I will say that it has gone from 600’s to 770. I think it gives me added sense of accomplishment and motivation to keep pushing. I’m not sure if I’ll us VB to pay off mortgage when all other debts are paid. We’ll see. Thanks for the video!
Congrats on your progress!
If the interest rate on the LOC is lower than the mortgage rate, then VB always wins compared to prepayment. For LOC interest rates higher than the mortgage rate, VB will still win with a max savings that you can have in favor of the VB compared to prepayment equal to: monthly expense × mortgage interest rate × the total number of years you pay off your mortgage. Basically, this is not much. Assumptions are: you only borrow from the LOC to prepay the mortgage amount equivalent to your net monthly salary; keep the total LOC loan below your net monthly salary at all times; and direct depositing your salary to the LOC. Keeping an LOC loan balance more than your monthly salary will always make you pay more interest compared to you just prepaying your mortgage whenever you have the extra cash. Downside to this however is that your emergency fund is basically your LOC. So let's say for a monthly household expense of 3,000 and a mortgage interest rate of 4%, maxed annual savings you'll have is only $120, for as long as you have the mortgage. I'm really not sure if this is worth the hassle of doing VB and the other risks involved.
It's not worth doing the vb way, imo.
I don’t see how if by doing denzels method of velocity banking your making 2-3 lump sum payments on the principle so that your paying less on the interest following months do to the fact that the principal is way smaller. He is making the regular payments plus the large sum payments
If you look at both, the same amount of money is coming into your account and leaving your account each month. This means for his method, he borrows a chunk, then pays on it for a few months. During this time, all your extra income goes toward what you borrowed to pay the chunk. In my method you pay all your extra income towards your mortgage each month. The difference? When you borrow the chunk using his method, you're charged interest each month that the balance isn't 0. Again, same income, same outflow. The difference is so you pay the lower interest that the mortgage charges on the chunk or do you pay a second lender higher interest to chunk down a payment toward your lower interest home loan.
Denzel pays down the mortgage by paying huge chunks at a time which makes a hug difference in the balance interest and payoff time
If you pay huge chunks down where you don't have to pay interest on the money used to make the chunk payment, you're solid
You make some good points, but your math is wrong. 3.75% on a compound interest loan cost you a lot more than 20% simple interest. All you have to do is look at a chunk of the amortized table, and compare that to the same interest you would pay on a credit card over the same period Of time
The common mistake made by those who favor velocity banking is comparing total interest that would be charged by the mortgage over its entirety vs the interest paid on the credit card temporarily due to accelerated payments. What should be compared is the amount of interest you'd be charged by the loan specifically on the amount you're accelerating while accelerating payments vs the interest charged by credit cards or LOC's while they're servicing the accelerated payments' debt.
Ex. If I pay an extra 2k per month on my loan, I compare the interest charged on the 12k I put on the credit card vs the interest that would be charged on that same 12k only on my mortgage. If you include the interest charged on the rest of the principle balance, you're not comparing apples to apples.
Finally - I have been wrestling with the idea of Velocity banking and I just can't wrap my head around how it can possibly work. It seams they are creating money from thin air. They definitely don't understand what simple interest is. If a credit card offered me simple interest... MAN - I would be all over that. Can you give an example when velocity banking WOULD work? I don't understand how borrowing from a higher rate to pay a lower rate would work. Let's say I have an extra $2,000/month to work with...
Based on all the models I've played with, vb only works when you get an interest rate lower than your mortgage rate.
@@RealEstateInvestingUnmasked Based on my 32 years as a CPA, I believe you are correct. The other thing to consider is that if you take a HELOC on a principal residence, it's only deductible if it's used to improve the property.
How about VB to pay off regular debt?
You can do it, i just don't recommend it unless you get a loc that charges less interest than your current debts or if you can quickly pay off a debt that requires a payment with little principal remaining. That frees up money that can snowball other debts.
Thanks!
You have confirmed a lot of what I thought on Velocity Banking.
For Velocity Banking to work, you need to have a lot more income (at least 2k per months) then expenses.
You would just need some sort of extra money. If you aren't saving money and you are living paycheck to paycheck then yes, this would not work and you probably shouldn't be getting a mortgage or loan with that type of risk factor. The way VB works is utilizing the money that you would be investing in an IRA or savings account or something like that and using it now to create cash flow in order to save a lot of money in interest on the Amortized loan by using a LOC. It is a revolving line so when you make those extra payments, instead of investing extra into the mortgage itself, you will have access to that money again within the line for emergencies. It's a great strategy if you have the discipline, steady income, and depending on your cash flow normally (income minus expenses) depends on how much of a chunk you should transfer over to a line in order to not overwhelm yourself. You just need to look at all the numbers and figure out what works best for your situation. Check out this vid and don't mind the rental property detail he mentions. Just look at the first mortgage example he pays off. ruclips.net/video/GbGMVskwno8/видео.html
I would not dare putting my home as collateral to get a HELOC. I would just send whatever extra money I have to the principal. Thank you
You're explanation about VB is not in depth and therefore does a major disservice towards VB. I've been quite successful with VB. So far to date, I've paid $107.79 in interest using a LOC, although I've crushed over $33,000 in debt. Also, I've increased my monthly cashflow, no longer have credit card debt, no car note and my mortgage payments have been accelerated. By the way, I've been using the VB method since December 20th, 2018.
How much do you owe on your LOC?
@@RealEstateInvestingUnmasked as of this morning $1344.98. Today's daily interest is 45 cents. Velocity banking isn't complex, it's just an extra step to how we conventional bank.
This guy has forgotten the main component where u save the most. The leverage that the loc gives u is by far greater than ur left over income sent towards principal. This is the worst video about velocity banking. Leverage of OPM other ppls money will always win against your own income. Although it is debt it is debt that is revolving meaning it is available time and time again as long as u keep funding it. Your paychecks are one time use until u run out of money until next pay day. This is terrible. He is literally going against proven results that many have made with VB. Thumbs down for sure he's missing huge key points about leverage
"It is available time and time again as long as you keep finding it" -my point...that's the same thing as saying you'll have cash over and over again as long as you keep getting a paycheck. That's the danger in velocity banking-other people's money to pay other people's money (debts) still has to be paid off by one's underlying income.
If you hit the down vote, I only ask that you double click.
Real Estate Investing Unmasked I believe I see your point! That this is all dependent on your getting paid because if you don’t you have taken a double risk as opposed to a single debt. Thank you for your perspective.
You must work for the big banks that don't provide lines of credits and other for the credit unions that are all about their members. 🤔 🤷🏼♂️
Thanks for the video. A couple of thoughts/questions. I started using VB a few months ago. My paychecks and rental income go into my checking, which I then immediately transfer to the HELOC (both are at the same bank). The HELOC charges interest each month based on the average daily balance. I chose the interest-only version, as that seemed less risky in terms of required payment, though I am pretty frugal and am not tempted to spend more money with the new access to the HELOC. On the contrary, I'm more motivated than ever to get out of all debt! So, whenever I get a statement, I apply the first excess cash to the interest due, and the rest goes towards the principal of the HELOC.
All of my bills pay on the 15th of the month and my checking is set to overdraft into the HELOC without any fees. So, I can keep all of my liquid cash in the HELOC for maximal days, thus maximizing the number of days at a lower principal balance. When there's an overdraft, I can move the money to the checking manually, though the bank would do it within a day I think if I didn't. I stay on top of it, though, since it's all online. So, with VB, I'm taking advantage of the way the interest is calculated in terms of *daily* average balance instead of my mortgage (30 year fixed with 27 years to go), which is based on a *monthly* balance I believe. Also, since my liquid cash isn't sitting in a low-paying checking account, but in my HELOC, it's doing more work for me isn't it, effectively giving me 4% on my money (the rate of my first-lien mortgage) or would it be the current HELOC rate (5.25% I believe)? If I do it your way, that liquid cash is losing money when factoring inflation, isn't it?
Also, when I opened my HELOC, I kept my emergency fund out of it, so I now have access to more cash in the case of a big emergency or major repair. It seems like a big advantage of this method is that paying more on your mortgage ties up that money until the mortgage is entirely paid off, whereas the HELOC remains open and liquid. Also, if your emergency fund is only a few thousand dollars vs. the 3-6 months of expenses that someone like a Dave Ramsey recommends, then isn't it advantageous to have access to more cash if you would lose your house anyway in the case of an inability to pay your bills? I suppose you could open a HELOC and not use it just to have that cushion if you needed it, though some banks may charge an inactivity fee.
I haven't finished this yet, but this is an interview with the founder of Truth in Equity, the service I am using: radicalpersonalfinance.libsyn.com/315-is-mortgage-acceleration-replacing-your-traditional-mortgage-with-a-heloc-really-a-good-idea-interview-with-bill-westrom-from-wwwtruthinequitycom.
Also, I'm confused about whether mortgages are compound or simple interest. Per this, they're simple, not compound, which seems to contradict your other video: www.thetruthaboutmortgage.com/are-mortgages-simple-interest-and-compounded-monthly/.
But, per this, HELOCs are charging simple interest: financialhealthblog.blogspot.com/2009/05/mortgage-vs-heloc-compound-vs-simple.html.
I appreciate your thoughts.
One of the reasons I don't like using a loc is the lender can freeze your ability to borrow at any moment. Having had that happen to me once, I don't trust them. As for losing inflationary value of your dollar doing it my way, the calculation would be so insignificant because it would amount to opportunity cost between keeping an emergency fund vs putting the emergency fund into the heloc where it could lower your interest payments. Ramsey suggests holding a $1000 emergency fund until all debt except the house is paid for. Inflationary loss on that will be small. As for the way you're working the heloc, it sounds like you're getting the maximum benefit out of it as I understand what you've stated. At this point, if you're belief is that the heloc won't freeze on you in a bind, and you don't think your income will stop, why not throw the emergency fund toward the debt, too? I don't recommend doing vb, but if you're committing to it, shouldn't you go all the way? I'm asking in sincerity, not mocking. I don't want to be misunderstood. As for saving, if your idle income is immediately attacking your debt limit upon its accessibility, yes, you're preventing interest from being charged on it and you're going to see your debt evaporate quickly.
Congratulations on your hard work. I wish you the best. If I didn't answer your question fully, please restate and I'll address what i missed.
@@RealEstateInvestingUnmasked Yes, it is a risk that the lender will freeze the LOC. It did happen back in the financial crisis. So, there a couple of ways to mitigate this: 1) don't take out the whole amount, but the amount that you could afford to pay back once it goes into its amortized repayment schedule, and 2) when many lines were frozen back during the financial crisis, many borrowers moved to another lender or were able to show their current lenders that their property hadn't actually dropped as much in value as the lender thought (a lot of lines were frozen based on the region they were in and not on particular property appraisals). Also, this VB (or whatever you call it) strategy doesn't require a HELOC, but can also be sued with a personal line of credit (PLOC). The interest rate is higher, but, from what I've been told, it can still make sense. I was just talking by email to the founder of Truth in Equity, Bill Westrom, who did confirm that one of the main reasons this strategy works is due to the amortized mortgage being a compound interest loan (I think most are compound yearly, but amortized monthly) vs. the LOC being a simple interest loan based on the average daily balance. If that's right, then the question I would have is whether your calculation takes these factors into consideration.
Why don't I throw it all at the HELOC? It's tempting, but since I just started in September, I'm seeing how it goes. Plus, I'd like my line to be a little bigger before I did this. We'll see. One thing this strategy has definitely done for me is to reconfigure how I view my expenditures. Every dollar I spend I now look at as borrowed money at my current mortgage rate of 4%. It makes me want to spend even less and make more to get out of debt faster! My current schedule is just under 12 years, but would love that to be shorter!
@@RealEstateInvestingUnmasked This from Bill:
When it comes to the calculation of interest; it is very easy really…balance X interest rate / 12 = conventional mortgage interest. HELOC: balance X interest rate / 365days X 30 days in billing cycle. If you calculate both formulas to any loan balance you will find results within pennies of each other. Interest and how it is calculated is really irrelevant. What matters is; what is the balance that is being used to calculate interest and what is income doing? Big balance and income providing no return? Or do you have the capability to apply 100% of your income against the debt? If the latter; you will save you interest and accelerate payoff regardless what the interest rate or how interest is calculated.
This is why I think VB advocates are funny to me. The calculation is very similar as you pointed out. My method is to simply apply what you aren't using toward the mortgage. It's the same as VB except VB requires you to borrow money to pay down your mortgage. So you're paying interest on money you borrowed to pay down an interest bearing loan. You can be just as disciplined without using a loc. People like Bill, as I understand your description of him, profit off people borrowing to pay down their mortgage. It's not necessary to do it that way. Will it work? Yes. If the interest is lower in the loc than the mortgage, it'll be better than my method. That's a mathematical calculation.
12 years is a long time, but you'll save hundreds of thousands in interest by cutting it short, depending on how much you owe.
Btw, if Bill is saying that it works because it's compound vs simple, the reality is that VB works because you're paying additional toward your mortgage. The interest savings is because of the balance that is compounded is reduced. Even if we called the loc simple interest, the result would be the same: interest decreases because the balance is lowered faster than making normal payments.
Great video, i find it disturbing how quickly people jump on velocity banking like its a great idea, so much extra risk and if you have the extra income required to actually do VV properly you can just do your method which will work in about the same amount of time....
Not to mention if you ever decide it's not for you, you're stuck for a few months with velocity banking; whereas with my method, you can literally stop the extra payments at any time without getting stuck with credit card/loc interest...
I jumped on it years ago, paid off all my debt, and continue to use it to invest in the stock market and speed up my retirement. To each his own, I guess.
I really appreciate your insight and the realization that your suggested method works and simplifies the whole process. What is a good strategy for someone who owns their own business and then basically brings home almost exactly what they need to live off? Should we take home extra to pay down the mortgage? How much extra should we pay percentage wise to bring our 30 yr mortgage to a 10 year mortgage?
Those are some great questions. With the understanding that I'm not a financial planner but rather a real estate investor with good intentions, I can share advice like I would to a friend and you can take it as you feel appropriate...
What other debts do you have? What expenses can you cut back on in your monthly bills? How much do you really have at the end of each month? How much do you owe on your house currently? What's your interest rate? With just your principle left on your mortgage and your interest rate known, we can run the math to see what a 10 year monthly payment would look like. From there, you can compare your current payment to it and see if it's doable. Is that fair? Want to tell me personally? Go to www.WatchBobonRUclips.com and send me a message.
I'm glad there's always a strategy out there that is similar to velocity banking, as long as you have the right idea 💡 personally, I like to use debt a lot because i like the Risk!
VB is one way to pay off debt. I don’t understand why you would borrow at a higher rate (HELOC) to pay off a lower rate debt (mortgage)? That is the opposite of arbitrage.
If you pay down mortgage principle in the same way you use VB, mathematically you come out ahead. It’s just not novel or sexy. That is why the spreadsheet showed that VB only outperformed when the HELOC was at a lower interest rate than the mortgage. That is finance 101. VB is a cool concept, but is really just window dressing.
Velocity banking is working really nice for me. Paid my cars my CC in record time one year. Now I am going for one of my rental properties. BEST PART. Two credit unions gave me 20k PELOC. Personal line of credit. My credit in one year went up big time. Is working really nice.. Velocity bank... works 100% when you are discipline..
Thank you for sharing, Pedro. I'm happy for you! Congratulations on your success!
Has anyone ever met a single person that has actually used Velocity Banking to pay off their house? Not the people who say, "I am doing it" but people with an actual house that is paid off in 7 years. If you are saying it works, but you have not done it, then you have no idea if it works. It is just a more complicated and risky way to make extra payments. And, dumping every extra dime you make into extra house payments is not the best idea either.
I've had a few people who have commented claiming they've paid off multiple properties using vb. I've paid off multiple properties by dumping profits from fixing and flipping into mortgages to decimate them. However, the only way to quickly pay off a mortgage is to literally pay more than what they ask, so then it's a question of which way is the cheapest and fastest way to clear the mortgage. I have several investor buddies who think the whole idea of paying off a mortgage is a silly idea in the first place because they'd rather invest their extra monies in the stock market. For me, psychologically, I love having a paid for house. It allows me a lot more mental freedom and peace, whereas paying a mortgage increases anxiety for the need to make a higher roi. That's always a gamble... now I'm rambling...
The key is to live on less than you make. I only owe just under 70K on my mortgage and have another 15 years on my fixed 30. If I put an extra 700 buck a month towards my principal each month I could pay it off in lass than 10 years with out a new loan or additional risk of any kind.
700 more per month would prob have it paid off in less than 7 would be my guess, depending on how much is already going toward principle. Congrats!
there s actually a simple way to look at it your yearly bank statment tells you how much interest you have paid vs how much principal so let s say if in my case interest is about 2000$ spread on the whole year versus line of credit interest spread over the same year it comes up to pretty much the same, the whole point of this velocity thing works only if you obviously can run faster the same distance of that year meaning you really put your whole money into that line of credit and you can do it if you control the rssks and there is no emergency and thats the hardest to plan for, unless you do build a seriou emergency fund first.
I appreciate your video.
You know what you know & if what you know is working for you, then more power to you.
You analysis of amortized, simple & VBC is bizarre to watch & hear.
I had to watch the video twice IOT to make sure that I was hearing what you’re saying.
I get it, you don’t like debt. That’s fantastic. I’m sure a large percentage of people will agree with you.
My question to you is:
Considering that time has gone by & people educate themselves, evolve & become more efficient & learned in their concept & their understanding of the points made in this video; do you still practice & stand by all of your proclamations?
Great question. Yes I do. I pray for people to be debt free, I pay down my mortgage as fast as is practical, and I stay away from debt. When I paid off all my debts years ago, my life changed. Going from paying interest to earning it is a huge gain. Imagine going from paying 8% interest to gaining 8% interest... that's a 16% difference.
The other part is if you're borrowing to pay off debt you're just redirecting your interest. Refinancing debt is is more efficient.
Which way is the best way to pay off your mortgage? I just brought a house. 279,900. No down payment. 80,00 is at zero interest.don't pay until I sell.Do I make the extra payment in January or December?
Make an extra payment as early as possible. The earlier you pay toward your mortgage balance, the less interest that is charged on the loan.
My current lender is allowing unlimited recast as long as I'm willing to pay $150 for th recast and have contributed $5000 to reduce my principle.
- With this in mind do you feel applying VB practices with frequent recasting would result in less interest in total towards the loan?
- I thought HELOC by rule funds are not allowed to be used to apply to your mortgage? True or False.
Thanks
I love recasting! However, if your aim is to pay off your mortgage quickly, a recast is never necessary. It would only be beneficial if you needed to make your regular payment lower because it is hard to make the regular payment. In effect, it keeps your amortization schedule, but lowers how much of your payment goes toward principal. If the current payment amount works for you and you're making extra payments, you want to keep your normal payment high as it locks in additional principal payments. It's kinda funny they charge you to recast because it mostly just helps the bank.
Heloc funds can be applied toward anything unless specifically stated otherwise in your loan docs.
In case I wasn't clear enough in my previous response, recasting while using the velocity banking method, or just applying additional principal, does not affect how fast you pay off your mortgage. Instead, it effectively lengthens the time you've cut off the loan back to the date you initially locked in...ie. if you got a 30 year loan that would sunset in 2040 and you paid enough principal that it would be paid off 5 years sooner, then you recast, your loan would go back to finishing in 2040 instead of 2035. The only change is your monthly payment amount, not the amount of interest charged.
@@RealEstateInvestingUnmasked . It seems everyone I talk to, lenders, assumes that when an owner recast that that owner is more excited to pay the lower amount and they declare a recast as a waste of time/money/effort. I'm not thinking that way and I should have clarified. I'm thinking my current mortgage is $2000 PI and I want to keep my monthly payment at $2000. I recast and get my PI to be $1800, I now have $200 more to attack the principle per month. So what I'm asking is if I can use VB assuming I can decrease the principle down $13000 every 6 months and I paired that with recasting and pairing it with always bringning forward $2000/month to attack a mortgage. Is this potentially a good play to payoff the mortgage sooner. I will also say if we are abel to do more than $2000 month and that goals towards the credit line in the VB strategy then perhaps we are doing $13,000 decrease in Principle evey 4 or 5 months. Thoughts? Still feel just extra paymenst with recasting is a better play?
Thanks for your quick response
I personally think the math would show off you make the extra payments toward your loan instead of doing vb, you'll be a good off or better. As for recasting, do this, ask for your current amortization table and compare it to the recast amortization table. I think you'll find that the current payment is better for paying down your mortgage quickly, that recasting doesn't lower how much interest you're paying... it just lowers the amount of principal you're required to pay. I wouldn't recast unless you needed a lower payment. It doesn't sound like you do because you'll be paying more. I'd just pay more towards the mortgage.
It is all about the cash flow. People are right. You use the loc for leverage to create cash flow. I don't care what he says you need a pay check to live on any ways . The saying is you have to make what ever money you make work for you no matter how much you make.
Once you make a mortgage payment the money is gone. If you pay the same amount towards a line of credit you have access to the money for emergencies. It’s like using your savings account to pay off your mortgage. You can’t do that with conventional loan, no?
No, you can borrow back in a conventional loan what you paid down. Then again, isn't the whole point supposed to be to pay off the mortgage? Are you implying you would not have an emergency fund? If not, what do you do when there's an emergency and the creditor freezes your loc?
You barely touched on the importance of cash flow and you didn't discuss at all about the power of leverage. Cash flow and leverage are everything.
The underlying factor is that you put all of your paycheck into the LOC each pay period. The cash flow as velocity banking advocates describe is tons of movement with the cash. It actually makes it a more complicated thing to do. I feel like people who preach velocity banking misunderstand leverage and cash flow. Real world experience and the calculations I've made dozens of times have shown me that paying off a debt rapidly does not need to be as complicated as people are making it out to be. I could make models that show velocity banking works in a vacuum, but real life complicates things. This is why I concluded, with intellectual honesty, that velocity banking only works under certain conditions, otherwise discipline, the "leverage" of one's paycheck, and the "cash flow"of one's paycheck is all one needs.
@@RealEstateInvestingUnmasked so you agree that velocity banking works. Good job.
BRONXDEVILDOG yes velocity banking works just as me sending my mortgage company extra principal twice a month
I’m on month #41 of a 30 year fixed. Still owe $277000. The mortgage calculator did not provide an option of chunking every 6 months ( recommended for velocity banking) but it did allow chunking every 12 months. At positive cash flow of $2000 per month ($12000 per year) I would save an extra $4000 over the course of the loan with chunking. HOWEVER, the calculations assume a heloc or credit card rate of 0%.
And people in school said I'd never use math ...
Thanks for the video. I was considering doing velocity banking prior to watching your video and doing the numbers myself for my situation. I also like the idea of your “emergency fund”. I have a tendency of sending too much extra principal and not having enough for other bills. Now I know what my number should be. Thanks again.
Thank you for saying something. That is why I do my videos. I love seeing people's lives improve!
The interest you pay on your Dept weapon is way less than the interest your pay on your mortgage. So if you're saving $100,000 in interest payments on your mortgage and you pay $30,000 in interest payments on your Dept weapon you literally have just saved $70,000 in interest payments by using velocity banking. Your debt weapon is a HELOC, personal line of credit, or a credit card. They all are simple interest being calculated daily so as you make big payments to your HELOC, PLOC, or credit card every single week or every other week you're only paying interest on the balance on each days balance. Since you are not using the line each day to pay your bills out of it the balance stays lower until you make another larger payment to the car or mortgage.
Car payments and mortgages on the other hand are amortized interest meaning you pay upfront on the front end of a loan the high interest. And as you pay the loan off your anount going to interest is getting lower that's why the first 7 to 15 years of a mortgage you're literally paying unimaginable amount of Interest every month
That's a nice thought, but the reality is that your loc charges interest in a front loaded manner too. You can't compare the interest saved over the long run to the interest you pay on a loc while rapidly paying it off...I mean you can compare them, but it's futile. What you should do is compare how much interest you pay a line of credit vs making additional principal payments sans loc during the same time frame. A common way to trick people into thinking you're paying less using vb than just paying additional toward your mortgage is to compare apples to oranges. To make it a fair comparison, you simply have to take a fixed period of time, say six months at the beginning of your loan, and compare the interest you're charged on a line of credit vs just paying additional payments toward your mortgage using the same payments. For instance, if you chunk 10k on your loan, but pay off that loc within 6 months, you'll pay about 8 ish%on the 10k in interest, or about 800... I'm ball parking... because you removed that 10k from the mortgage, you can only count the 800 as your interest for comparison. Now compare that to the 2% you would have paid on that same 10k in the form of additional payments with 2% representing 6 months of a 4% mortgage, you'd pay $200 ish in interest on the 10k only. That's apples to apples. You paid 600 ish to fulfill a fantasy...
Hi there. I love your videos and your honesty. My spouse and I are getting ready to purchase our first home and the next step is signing the contract. Any advice moving forward on a plan to start paying off the mortgage sooner than 30 years? I'm definitely NOT refinancing and I dont like having a big debt. What should we start doing from this point on about our future mortgage?
Knowing only what you've told me, if you're debt free, whatever extra money you have, other than your emergency fund, should go to the mortgage...the sooner the better because the majority of the interest is front loaded. If you want to live to the fullest, sacrifice a couple years doing this at the beginning and you'll make huge strides...even if you only did it for a year, you'll be floored by how fast you'll advance in your amortization table! Even just applying a generous tax return, if you get big ones, will be huge! I personally try to get as close as possible to zero back each year.
I must say leveraging is not for every one. Line of credit is good debt if you use it to get cash flow like rental income, but remember also it comes with high risk. If you could not get a tenant or got a bad tenant or some major repairs to the house. The other risk is if you loose your job. Velocity, in getting money and velocity if it did not work you go down faster than ever. It is always nice to approach a Financial Advisor and learn . Sophisticated investors it may work and one has to balance in all spending and no impulse buying because money is there. I personalty prefer not going into debt, I paid my mortgage in 5 years by paying down each year 15 to 20 percent towards the principal. Having a good sleep is better for me than worry about many variables. I am not against leverage for the right people for the right investments at the right economy and at the right time. If any one of that is out of line it may not be a good idea. I like your video and I am sure it can make an investor think before jumping in to it and may get hurt. Just to add another point is if the value of the home goes down in a HELOC type of borrowing the banker will call the line of credit and ask for more money, So any type of borrowing is always, ALWAYS do after knowing the possible pros and cons and make sure do a suitability test by a knowledgeable and TRUSTWORTHY Financial Advisor.
I think it's good to have conversations with financial advisors. I've heard too many give what I would consider bad advice, like the ones who suggest keeping your loan for the tax write offs, back in the day. It was ludicrous, but it was commonly taught. One thing about what you said...if borrowing creates high risk, I don't call that good debt. When people borrow money, they more often than not believe they're borrowing at the right time, for the right thing, etc. It's not until they lose it that they can look back and recognize it wasn't good at the time. Thanks for taking the time to leave a comment!
Many things and many variables involved in any type of borrowing and investing. So listening to general opinions is one thing and following on that advise is another. I believe you may have opened the eyes of many investors to look at this line of credit and investing carefully. I am a Certified Financial Planner I listen to these just to know what the common man thinking. Many who comes to the You Tube and say, I am not an advisor but this is what helped me. Agreed may be true. Its like I say, I took this medicine and it helped me. But a pharmacist, if you ask him what is the best medicine in your pharmacy give please, will he give you? NO. Why every medicine is there for a reason and a doctor who is qualified needs to know his patient and his condition and decide. Like wise it goes to investing. Seek Professional advise, sorry competent professional advise to be precise. an advisor who is trust worthy. I replied to your You Tube because I liked the way you addressed it but in no way I am telling the viewers to follow yours or any ones else's' advise. But watch it no problem but seek competent advise. Thanks and have a great day.
My line of credit allows a transfer or deposit for 0% for 1 year. Probably cause i have a 830 credit score and no debt except for my mortgage. I think Im going to do velocity banking at least for one go around for 10,000 and see how it goes. That one chunk will save me over 12,000 in interest on my mortgage where Im paying it back at 0% for a year. Paying down 2000 a month from my paycheck which is a comfortable cash flow monthly payback for me will get me to pay it off in 5 months. If all goes well I will rinse and repeat. Mind you I have 30 grand in savings to float me in case anything goes wrong. Id rather borrow the money than dump my 30 grand I have saved in the mortgage where id never get that money back unless I sell my house
Sounds like you've got a plan that'll work for you and your circumstances. You'll be out of debt quickly.
Your way is not faster! Put up a chart showing your way and velocity or speed equity or what ever you want to call it. Velocity banking reduces your mortgage balance further and more than your way of sending an extra $$ amount every month. The key difference is velocity banking reduces your mortgage balance on a daily basis, your way does it every month or once every 2 weeks. The results are not the same!
Unless the interest rate for the LOC is lower than your mortgage, math disagrees with you.
Now this make if your discipline is weak You have debt problem regardless
if you think velocity banking works, then you don't understand math. It is a lifestyle change that pays down the loan. Simple interest is EXACTLY the same as amortization.
Not only do I think it works. I know it works. Because I live it (not just pushing numbers around on a spreadsheet). Not only have I used it to pay all consumer debt (car loans, consumer loans, etc.), but I now use it to take out personal loans I use to invest and beef up my retirement accounts. So to each their own. Guess I’ll just keep Velocity Banking around like a dummy and building my wealth.
As long as you make payments larger than the interest accrued on the debt (ie. you pay your debts on time) it is ALWAYS simple interest.
Compound interest occurs when you are charged interest on previous interest.
Using that same logic, even mortgages are simple interest. If that's true, why, again, would someone borrow money at a higher interest rate to pay a lower interest rate? After all, you're only being charged interest on your mortgage balance, not interest that's been added to your mortgage balance. Because, as you stated, if you always pay your debts on time, it's simple interest. That would make both credit cards and mortgages simple interest. I disagree with that premise as a reason to do velocity banking. I understand where you're coming from, but your logic, as it applies to velocity banking, again tells me I'm better off just paying additional toward my mortgage.
To be fair, you haven't stated whether you're for or against vb, but to illustrate my point, if someone only pays their minimum payment on their credit card, they'd be paying all the interest that was charged that month. If someone only makes the minimum payment on their mortgage, they also are paying all the interest that was charged that month. The difference is the mortgage interest balance is a higher amount, typically, because there's a gigantic principal amount vs credit cards which carry smaller payments. The argument for vb is that mortgages are amortized and credit cards aren't. That's a really asinine argument, because even your credit card statement says if you just paid the minimum payment, it would take 28 years to pay or some such nonsense, and that's because they're required to have you pay 2-4% in principal or some such number, along with your interest payment... which is amortizing your bill...I might just have to do another video to illustrate this point...
@@RealEstateInvestingUnmasked to implement an acronym I learned recently... TL;DR - I'm on the same page as you. Better to direct cashflow directly to mortgage than to shuffle money around through a LOC.
I had the same conclusion.. now im trying to bust infinite banking.. but i think its easy to say that you dont get your money out of the policy
Infinite banking... interesting concept... way more complicated. I might address it on my channel... thanks for the 💡
You need to learn more about Velocity Banking. It's been used for Years Successfully. Bad examples with very little knowledge is a bad recipe. Good luck.
I agree that bad examples with very little knowledge is a bad recipe. That's why I don't mix with those ingredients. I've learned enough about velocity baking to know it gets the job done, just isn't the most effective way. You do you. People should know all the sides, not just info from the vb evangelists.