1st Lien HELOC: Velocity Banking
Updated as of January 15, 2024 | FirstLienHELOC.com
Wondering how to Maximize Your Cashflow?
Look at your personal finances. Calculate your recurring and projected expenses, and measure those against your guaranteed and projected income. The relationship between these items is your cashflow, and is something that can be optimized to save you money.
Many homeowners calculate their budget on a monthly basis, and generally sum up their income and expenses to a bottom line to determine their net income. This seems to make sense, but it disregards the differences in time between your income and expenses. At certain points in the month, your net income may vary drastically, being much higher or lower than the end of month calculation.
By routing your income and expenses through your 1st Lien HELOC, you can take advantage of the reduced principal balance (due to your periods of positive cashflow), which ends up saving you money on interest.
Disclaimer: If you do not have a positive cashflow, then your principal balance will increase and you will not save on interest.
How to Maximize Your Cashflow
1) route all income to your HELOC
2) pay all expenses from your HELOC
Seems simple doesn’t it? Is that really all there is to it? No magic tool? No prize behind a walled garden? As anti-climatic as it may seem, this is the truth. By routing your cashflow with your 1st Lien HELOC as the central hub for your income and expenses, you pay down your principal balance much faster, and therefore, reduce your calculated interest liability exponentially.
Cashflow and Interest Calculation
Most 1st Lien HELOC’s calculate interest based on the average daily balance (while some use other means of interest calculation). When you factor for monthly cashflow considerations, as long as you are cashflow positive more than you are cashflow negative, you can save money as less interest will accumulate.
What about savings?
The Velocity Banking strategy disregards conventional personal finance wisdom and intentionally allocates your net cashflow (including your savings!) toward paying down your loan’s principal balance. It’s important to note that under this strategy, you don’t have a separate savings account, but instead are expected to pull money from your credit line in any instance where you would generally need a savings account.
This structure can be beneficial because it forces you to pay down your loan as quickly as possible and limit your interest liability – meaning, you will likely save more on your loan over the long run.
Once your loan is paid off in full, most lenders allow your extra payments to accrue as a balance in the connected sweep account, or in banking terms, demand deposit account (DDA).
In discussion with our local community members, we have found that many homeowners using the Velocity Banking strategy with a first lien heloc will retain a separate savings account and keep the commonly accepted 3-6 months expenses in it for any “just in case” scenarios. Budgetary and financial decisions like these really depend on your comfort level with different risk profiles, and how much you truly want to maximize the efficiency of every dollar you earn. We recommend working with a certified financial planner to make the decisions that are best for you.
Why haven't I heard about this before?
Well first, this strategy is relatively new. Not a lot of people know about this because the Banks aren’t incentivized to promote this. Banks want one thing. . . to make money, but the strategy we are promoting makes them less money than a traditional mortgage.
Banks aim to make as much money as possible, as quickly as possible, and for as long as possible. Traditional mortgages successfully accomplish these things for the bank, along with many government subsidized programs existing for mortgages.
But HELOCs have been growing in popularity and some banks are exploring markets for a first lien HELOC. Once you explore the math of a first lien HELOC, you realize just how powerful it is in saving on interest and paying down your debt faster.
Disclaimer: The statements on this page assume a positive cashflow personal financial situation. If the household expenses exceed the total household income, this could cause an increase in principal balance over time and could result in worse financial circumstances.
Achieve Financial Freedom
Sign up on FirstLienHeloc.com to get connected with a licensed lender who can deliver an all-in-one 1st Lien HELOC. They’ll walk you through the application process and help outline your budget, your numbers, and exactly how much you can save by replacing your mortgage.