Common Assumptions of Velocity Banking

Many people will attest to the fact that velocity banking sounds quite appealing on the surface. Actually, the vast majority believe velocity bank will benefit them by allowing them to pay off their mortgage in 5-7 years. While there is some truth in this, there are also underlying assumptions the strategy that can fall apart.

Skimping on these assumptions could cost you baldy since it might leave you with more financial burdens than the first place. No wonder you ought to be fully aware of these assumptions before deciding on anything. Below are some of the most notable ones.

Paying Off Your Mortgage will Work to Your Advantage

One thing you ought to keep in mind is that velocity banking relies on the assumption that you ought to pay off your mortgage as quickly as possible. Of course, this is while counting on all of your available funds to pull it off successfully. While it might sound counterintuitive in the first place, you may want to pay off your mortgage within the shortest time possible.

Remember, your home is the most effective liability, and there is nothing wrong with having a mortgage on it. For this reason, you are better off paying off your mortgage while setting aside some of your free cash flow to build cash value. Through this action, you will certainly grow your savings hassle-free.

Saving on Interest Payments is Vital for Paying Off Your Mortgage

The velocity bank strategy relies on the assumption that you should save interest to benefit from paying off your mortgage earlier enough. Even though interest payments can add up and prove stressful, they are not primarily what you should be focusing on. When you’re all caught up in saving interest, you might end up forgetting all about using your free cash towards that purpose.

While it leads to lower interest payments, you may find yourself using all of your free cash and making do with lost opportunity costs eventually. That is a situation you never want to find yourself in at any given time.

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