Velocity banking loses to plain extra payments here. That is classic velocity banking compared with plain extra mortgage payments, after 15 years.
The HELOC rate (8%) is 5 points above the mortgage rate (3%), so each chunk swaps cheaper debt for pricier debt. Paycheck parking has to make up that gap, and here it does not.
| Strategy | Better than doing nothing | Interest paid (15 yrs) | Debt-free |
|---|---|---|---|
| Do nothing | $0 | $103,387 | 25.0 years |
| Extra on the mortgage | $59,494 | $43,893 | 9.3 years |
| Classic velocity banking | $57,405 | $45,982 | 9.3 years |
Monthly surplus after the mortgage payment: $1,677. Peak HELOC balance: $20,000 of a $75,000 limit.
Both strategies use the same income and the same surplus. The only difference is where the money goes. Sending it to the mortgage stops interest at 3%. Running it through a HELOC at 8% and borrowing $20,000 chunks changes which debt carries the interest.
The break-even HELOC rate at a 3% mortgage is about 4.9%. Your own rate, balance and cash flow will move that number, so check yours.
Mortgage balance $300,000, 25 years left, payment $1,423. Income $7,500 a month, bills $4,400. HELOC limit $75,000 starting at $0, $20,000 chunks. 15 year comparison.
In this example it does not. Over 15 years classic velocity banking ends $2,089 behind simply sending the same surplus to the mortgage.
About 4.9% in this example. Below that the method pulls ahead, above it plain extra payments win.
Because HELOC rates are usually variable, a 2 point rise (10%) moves the result to -$3,520 versus plain extra payments.
Your mortgage, HELOC and budget are different from this example. The free Velocity Banking Lab tests yours, with a quiz that tells you if you should do this at all.
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Built by Joe Peinado. About and method | Break-even rates | All scenarios
Educational estimate, not financial, tax or legal advice. Fixed mortgage rate, HELOC interest charged monthly, paychecks at the start of the month, spending spread evenly, no fees. Real lenders, rate changes and fees will change the result. Talk to a licensed professional before moving money.