As a financial advisor dealing with many clients, you must have faced situations where your clients want instant solutions to their financial problems. It would help if you were able to answer all their questions about loans, interest, education benefits, insurance claims, etc.
One common question is about paying off mortgage loans faster to avoid high interest payment. You might suggest velocity banking to your clients. But what is velocity banking? Is it right for your clients? Will it serve their best interest?
What is Velocity Banking?
Velocity banking is the concept of using small debt to pay off large and long-term debts like school loans or mortgages. Utilizing a line of credit can help you manage your cash flow and pay off your house while covering your expenses. HELOCs or “home equity lines of credit” are commonly used to cover all mortgage expenses, effectively replacing checking accounts, since they act as expense accounts.
You will save your client the trouble of opening a savings account by opening a HELOC account, and they can manage their cash flow through the HELOC account.
Advantages of Velocity Banking for Your Clients
- Depending on the disparity between the line-of-credit’s interest rate and that of their mortgage, you may be able to save them a significant amount of interest.
- A constant cash flow will be maintained, and there will be no late fees on loans or cash shortages.
- Your client will be more at peace as getting out of debt quickly helps balance financial stability efficiently.
- Your client can plan for an early retirement, making sure that there are no dues or debts left to pay.
- It can be used in conjunction with infinite banking that allows increasing capital for future savings and
Cons of Velocity Banking
- Using another line of credit may be responsible for more debts for your clients.
- In a buyer’s market, mortgage interest rates can decrease, possibly making an extra line of credit more expensive than the mortgage they’re being used to pay off.
- Immediate access to your equity may increase your clients’ purchases and affect their expenses.
- You may have to offer your client an adjustable rate HELOC credit account because many banks do not offer fixed-rate HELOCs.
- Regardless of how low a HELOC’s interest rate is, it does not cancel out mortgage interest, but adds to it. In velocity banking, your client will be paying interest on two fronts, regardless of their rates.
Conclusion
There are many advantages and disadvantages to velocity banking and its applications in various cases. So if you’re wondering, “what is velocity banking, and how can I use it to help my clients?” the above information will come in handy. Analyze if it will be suitable for your client. It may or may not, depending on your client’s financial situation and financial stability. However, if their motive is only to avoid paying the mortgage over a long period of time, velocity banking might be a good option for them.
Read also:
