Velocity Banking for mortgage payoff

[Rockatansky]

This has been previously discussed under the PILL method thread: https://forum.mrmoneymustache.com/ask-a-mustachian/pill-method-or-paying-off-mortgage-faster/ but it's 7 years old at this point.

I was intrigued by the concept of this though (not all the things they are trying to sell you though) because of the difference between daily interest calculation and monthly differences. In essence you are using a home equity loan to pay off your mortgage and then using your home equity loan as your checking account. So whole check goes to pay off loan then you take money back out of the home equity to pay off living expenses. This way your daily interest calcs are lower than what a monthly would be. I'm all about paying it off early, but not paying extra towards it.

I might not be that great at describing it, so here is a good description I found online. https://www.thewaystowealth.com/debt-payoff/velocity-banking/

I created a spreadsheet, but all I have is a work computer, so don't think it'll like it if I attach it.

[Catbert]

Is this a variable interest rate?  I definitely would not trade in a fixed rate mortgage for a variable one.  Beyond that  (major to me) issue it depends in part on how much you keep in checking.  If your float is a couple of hundred dollars it won't help much.

[Rockatansky]

Is this a variable interest rate?  I definitely would not trade in a fixed rate mortgage for a variable one.  Beyond that  (major to me) issue it depends in part on how much you keep in checking.  If your float is a couple of hundred dollars it won't help much.

It is variable rate and I typically pay everything off twice a month as the pay comes in. So, typically $5000 across checking and savings that is for taxes and other bigger bills.

[sailinlight]

That's just a mental trick which will end up costing you more over the long-run since the HELOC interest rate will almost certainly be higher than the first mortgage. Either pay down the mortgage extra each month, save enough in a savings account to pay it off all at once, or don't. No special tricks needed

[Rockatansky]

Yeah, you guys are right. It's essentially making extra payments with the leftover money, I thought it was hacking the interest from monthly to daily.