Published on Nov 14, 2017
I wanted to share one of my favorite strategies and that is the Debt acceleration strategy that allows to pay off a home mortgage, auto loans, student loans… without having to send double payments to the bank or change current income. This strategy is known as Velocity Banking and in this video I will demonstrate how Velocity Banking can be used to pay off a 30 year home mortgage in just 5-7 years.
First, I create scenario of someone’s financial situation by taking an average income of a person in the United States combined with some popular monthly expenses 4 of them being:
Home loan (mortgage)
Minimum payments on credit cards
Once the expenses are identified and compared to the net monthly income I demonstrate the importance of cash flow and why having a positive cash flow is the goal. Then I want to identify the difference between a loan and a line of credit because understanding the difference between the two is where the strategy lies. I do this by explaining how the interest is calculated for a loan vs. a line of credit (credit card). Then I share an amortization schedule to demonstrate how monthly payments on a mortgage are dispersed between interest and principal paydown. I go on to identify the main reason why people now a days more than before are having a harder time paying off their home mortgage and the main reason is due to refinancing! I share an app called “Karl’s Mortgage Calculator” that does a good job of showing the high amount of interest that the bank charges on the home mortgage and how over the lifetime of the loan a person pays more interest than their home price.
The secret to paying off a home mortgage in 5 years lies in utilizing line of credits. And the strategy of Velocity Banking really kicks into play at this stage because it required to bypass the accustomed system of depositing monthly income into a checking and a savings account and rather taking the entire monthly income and putting it all towards the line of credit. What this does is it creates cash flow and allows to pay off any present balance on the credit card with speed. Then use the credit card to pay the remaining monthly expenses. Once the credit card balance has been paid off, that line of credit is applied towards principle paydown on the home mortgage, then the same technique is utilized to get that balance down to zero. This technique is repeated for 5 years until the principal of the home is paid off. Taking the time to learn and understand this strategy will result in thousands of dollars in savings otherwise to be spent on interest.
KARL’S MORTGAGE CALCULATOR APP:
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DISCLAIMER: Please consult with a professional prior to engaging in any financial strategies. Not everyone will experience 100% success rate by using this strategy as it requires a commitment to keep applying this strategy over time until the desired result is achieved. I (Laura Pitkute) do not promise or guarantee any specific outcomes and/or results from the use of this strategy.
Comments • 1,554
Diego Almora5 days ago
Jump to 20:00 for the HOW TO.
Tampatec3 days ago
you look like a super model and have an enchanting accent, i watched the whole video mesmerized.
optionstraderman2 weeks ago
The goal here is to pay off as much of the Initial Principal Balance ($200,000 in her example) as fast as you can. Per Laura’s video, you must keep paying your normal monthly payment, but instead of putting your extra $1,400+ per month in a dead savings account at near Zero Returns, she has you put that money towards paying off your Credit Card or Line of Credit FIRST, then begin paying off your Mortgage Principal in large chunks. Essentially you’re just sending the bank a Principal Only Payment every 6 Months and then paying it off over a 6 month period from your Line of Credit Account and doing it over and over again. If you don’t have any credit card debt or don’t want to use a Line of Credit, you can essentially do the same thing by simply just sending the extra $1,400+ per month directly to the bank and MAKE SURE YOU MARK THE PAYMENT AS A PRINCIPAL ONLY PAYMENT so it gets applied directly to the outstanding Loan Amount, NOT INTEREST on the loan. By doing it Monthly, you may not save quite as much Interest on the Mortgage, but you will still save a sizable amount over time. By doing this, you will be paying down your Principal Mortgage Balance by an additional 16, 800 per year in addition to the principal paid down by your normal monthly payments you will continue to make. On home loans, the interest is calculated on the entire principal amount the day you take out the loan with the assumption that you will be taking 30 or perhaps 15 years to pay it all back (depending on the terms of your loan). A lot of original loan documents will also show you how much you will actually end up paying in total for borrowing the money for such a long time. On some loans, it can amount to 2x or 3x the original amount your originally borrowed, so, the sooner you pay off the Principal Balance (Initial loan amount), the less interest you will pay over the life of the loan. Great Job Laura!
Gabriella Dots2 weeks ago
Jump to 20:00 for the HOW TO.
Todd Gun2 weeks ago
In any case, your formula is basically paying off early by double payment, and bi-annual lum sum of $12K.
redgear45662 weeks ago
You could also get a new credit card with no apr for a year. Thank you this is good. I really do like the Christmas lights btw
Yaokai Jiang2 weeks ago (edited)
Your thinking / assumptions are all wrong. 1. You did not include tax in the income, at 60k, 3721 would be your take home pay, the rest goes to taxes, assuming no mortgage (with mortgage your get a tax break on the interest) 2. Your mortgage interest is wrong. It’s around 4%, not 6%, making a huge difference. 3. You did not factor in the effect of property tax. 4. You did not factor in the effect of inflation, 1 dollar today is not worth 1 dollar tomorrow. 5. You did not factor in the effect of mortgage interest tax deduction. 6. You did not think about the alternative use of money. 7. The whole thing is unnecessarily complicated by the credit card. Factoring in all that, at 4% or less interest rate, I would keep as much home loan as possible by paying as slowly as possible or taking cash out refinance. Reason being: Mortgage interest is pretax, 4% interest is pre-tax money, at effective tax rate of 25% (assuming 60k income in california), this is really 3%. Inflation is around 2%, so each year the money is worth 98% of what it was the previous year. I pay 3% post-tax for keeping the money (I could either reduce my money at hand and pay off the mortgage or keep the money at hand and not pay the 3% annual interest for the next month). In effect, my cost of holding such money is 1% adjusted for inflation. If I have extra cashflow, as long as I can invest and get more than 1% return inflation adjusted, which means more than 3% nominal, I end up with more money. To demonstrate this, I made a spreadsheet assuming 5% nominal post-tax growth in investment (which is quite conservative) and say 2000 post tax money left over after paying all other things but not include housing. https://docs.google.com/spreadsheets/d/1dDW9DoRLkWNfYbZSjSdBD0HsgeFkdrqdI-jhWv6TIkg/edit?usp=sharing In minimum payment case, after 30 years, you end up with a fully paid house, and $948,770.32 nominal (before adjusting for inflation), if you max out monthly payment you end up with the house plus $837,189.14. Anyways, your whole strategy can be summarized by saying, don’t pay credit card interest, and put all the money towards mortgage once you have no credit card balance, do not save. Here is my take https://www.youtube.com/watch?v=ye59fyM_miQ
Vinny Ocean6 days ago
When I get paid my first stop is the liquor store followed by the “Asian Massage Parlor.” happy holidays
Pamela Williams2 weeks ago
Sorry but a line of credit or credit card charges you interest. Making an extra principal payment each month saves you interest on the mortgage.
Neil Dobbs6 days ago
youre not happy in the treehouse i built for us laura?
Mary Bolieu3 weeks ago
New subscriber! Thanks Laura for the great video and clarification.
dalton19811 month ago
One thing i never see explained in these VB videos is why it makes more sense to do it this way, than to say just pay the extra $1000/month direct to your 1st mortgage. If you covered it in your video and i missed it, can you point out the time you covered it? Thanks!
Linda Curry2 weeks ago
Thank you so much for this video. I made the same exact mistake and realized it after that I had reset the clock. The previous broker and told me not to do it but she did not explain to me why I shouldn’t do it and you did an excellent job thank you so much
Anardo Cuello2 weeks ago
What did I just watch? Is this black magic? How are you are to use debt to pay debt?
James Phillips2 weeks ago
So I make 30.00 per hour and work 40 hrs per week my income is only 1200 per week. My credit score is 780 my house payment is 960.00 per month on a 30 year note that’s including tax and insurance but I pay 600.00 every 2 weeks that just brought me to 15 years to payoff which is saving me 174,000.00 in interest that’s on a 120,000 home
Bijoux1576 days ago
The most valuable video on YouTube. Thank you so much for sharing this information.
Joe Truong2 weeks ago (edited)
This will only work if; cc balance + cc interest + cc mortgage payment fee 3% + onetime extra payment cc payment fees 3% = remaining cash/6 months; For example; ccb starts at 0, (otmp) bank to mortgage of 12k ccb=12k + cci=750 mpf=252 + otmpf=360 equals 13.4k/6mo=2.2k/mo to payoff cc Expense: monthly $3000 (car, living, mortgage) + 2.2k + 233 (1st month payment) = $5,400 income needed Interest + fees = 1.4k over 6 month 230k vs 30k in interest with this plan over life of mortgage, 30 years vs 7 years. This is interesting, I’m going to make a spreadsheet! Thanks! **Will help in getting out of pmi fees faster and get $400 in cc points per year!!
Country Frau3 weeks ago
The first thing is get the check with all the flipping taxes removed. So, your $5,000 earned is really like $3800.00. Then you have to take out the amount you are forced to pay for health insurance due to the flipping mandate. In our case for 5 in our family it is $1815. So then we are down to $1,950 to work with. And then there are utilities and all kinds of other insurance payments and living expenses and on and on. Very depressing. But I like what you are doing.
OWild1Child2 weeks ago
This is exactly what happened to me…
Ifcancan Ifnocannocan2 weeks ago
You are awesome on explaining this. and you are very beautiful. So it is better to pay a large lump some with a heloc than paying an extra $2500 a month?