[Ed Yost]

I believe I’m inadvertently practicing something similar to velocity banking, although instead of directing the extra cash flow towards my mortgage, I’m investing it elsewhere.

Here’s a snapshot of my current financial situation:

• My home is valued at $650k, – with a remaining mortgage balance of $280k at a 6.12% interest rate.
• I also have a car loan of $19k at a 4.65% interest rate.
• I manage all my bills and expenses through my credit card, which I pay off in full each month. Additionally, I have around $50k saved up in a savings account earning 4.1% interest.

[Ed Yost]

Given this setup, would my $50k savings serve as an equivalent to a HELOC, or am I overlooking something?

On top of this, I allocate $1k monthly to a couple of taxable brokerage accounts, intending to use these funds to eventually pay off my mortgage once their balance matches that of my mortgage. I also make slightly higher mortgage payments, contributing an extra $225 per month towards the principal, effectively making over 2 additional payments per year.

Considering my goal to pay off my mortgage as soon as possible, would it be more advantageous to adopt velocity banking or make adjustments to my current approach?

I appreciate any insights or advice you can provide!

[Beth Wilkes]

First, use some of your savings to pay off the car loan. It’s a smart move that gets rid of a debt and frees up money each month.

Keep $10,000 in savings for emergencies. It’s important to have a safety net in case unexpected expenses come up.

With the remaining $20,000, you have choices. You could put it towards your mortgage, start a fund for home repairs, or divide it between both.

The key is to do what makes sense for you and your financial goals. Keep up the good work! And Congrats on your progress!

[Ed Yost]

Thanks for sharing your thoughts!

I’ve actually considered that same idea before. The only reason I haven’t acted on it is because I’m paying 2.65% interest on the loan, but earning 6.12% interest on my savings. Plus, both the loan and savings account are with the same bank, so it’s almost like they’re paying me to keep the loan with them.

I also have a separate emergency fund of about six months’ worth of expenses, although I didn’t mention it earlier.

[Jim O'brien]

Hey Ed, have you considered how much you’ll end up paying in interest over the life of the mortgage? It’s likely to be hundreds of thousands of dollars. One of the key aims of velocity banking is to pay off the mortgage as quickly as possible, so you don’t end up essentially buying a second home for the bank.

[Ed Yost]

I crunched the numbers, and it looks like it’s around $171k. That’s more than half of the original loan amount.

[Jim O'brien]

Oohh! Consider looking into getting a HELOC. Keep prioritizing savings in your expenses and start chipping away at your debts. It can really speed up your progress, but it ultimately depends on your goals. You’re already on the right track, so keep up the good work!

[Tracey Reich]

That mortgage interest rate is already good! We also have a 6.2% interest rate. Right now, we’re not in a rush to pay off our mortgage. Once we’ve paid off our $17,000 credit card debt in less than a year, we might look into investing in a high-yield account or any option that offers returns higher than that 3% mortgage interest. In my opinion, you probably don’t need a HELOC.

[Jim O'brien]

You should reconsider your approach here. The interest on your mortgage account is amortized, meaning you’ll end up paying tens or even hundreds of thousands more in interest compared to what a high-yield savings account could earn you. Try running your mortgage through a calculator like calculator.net to see exactly how much interest you’ll owe. Then, add in the amount you plan to put into savings as a one-time payment to see how much money you’ll save. Finally, calculate how much interest your high-yield savings account would earn using the same amount. You’ll notice a significant difference due to how the interest is calculated.