If you have purchased a home, you may have heard about velocity banking strategy. Many people claim that it’s a terrific method to pay off your loan in 5-7 years. You can learn and understand how to use velocity banking strategy and its operations and determine if it suits your needs.
Velocity Banking: What Is It?
Utilizing a line of credit as your main account and lump sum payments to pay off loans—typically mortgages—is called “velocity banking.” This strategy is about obtaining a line of credit that will enable you to leverage your cash flow and surplus funds to pay your bills while also contributing to the mortgage. This technique typically uses a Home Equity Line of Credit (HELOC), which serves as your primary cost account rather than a bank account.
As a result, you won’t need a bank account because your free cash flow will all be applied to your loan via a HELOC.
Here are some benefits of using the velocity banking strategy:
The ability to sell an item quickly and without impacting its price is known as liquidity.
The velocity banking idea promotes liquidity by enabling you to utilize your resources as collateral for a loan. Consequently, you can obtain cash when you require it without having to liquidate your possessions.
Liquidity is significant because it enables you to seize opportunities as they present themselves.
You can employ the velocity banking idea to obtain a loan using the stock as security if you have a company that you anticipate rising in value but need money to capitalize on the potential.
Greater potential for earning
You could make more money if your money flow is more rapid. You can deposit your money to increase your interest earnings.
Effective Taxation of Capital Gains and Income
Taxes can dramatically reduce your earnings, but the velocity banking strategy can help you pay less in taxes overall. If you want, you can postpone or even avoid paying taxes on capital gains by investing in other real estate with your house’s equity. Additionally, you can deduct any tax liability from your day’s work by using the income from your assets.
Utilizing the velocity banking method will help you spread your risk. You are employing many strategies to increase your wealth, so you have backup plans if one doesn’t work.
Asset and liability diversification
A vital advantage of this idea is asset and liability diversification. Combining the two, you can safeguard yourself from monetary shocks and increase your returns.
As with most people, debt is a substantial source of financial stress. Nevertheless, if you can figure out a strategy to better control your debt, you’ll be able to save more money each month. When done correctly, velocity financing can assist you in accomplishing that.
Velocity Banking Strategy Features
- An excellent technique for getting out of debt is through velocity banking if you are diligent and have some extra cash.
- If you put the effort in and stay with it, you can reduce your debt quicker than other methods.
- If your household receives many debt payments, you might find that you can raise your velocity because these payments deplete your cash flow. Every dollar you recover from your budget after the first can have a snowball effect.
- You can attain a new degree of freedom and enjoyment by paying off your debt.
This method functions by making a line of credit for your primary account. Your free money flow rapidly lowers the amount after regular deposits from your monthly payments and other sporadic incomes (child tax benefit, employment bonuses, sales of furniture, or tax refunds). You can then carefully pay off other obligations like credit cards and auto loans in bulk without getting into trouble.